Qingdao, China – January 8: Customers will browse at electronics shops amidst the national trade assistance program being held in Qingdao, Shanghai, China on January 8, 2025.
Zhang Ying | Visual China Group | Getty Images
Beijing – China’s latest move to promote consumption is not intended to shake up any kind of spending.
Last week, policymakers doubled the consumer trading program subsidies to 300 billion yuan ($414.7 billion) this year, bringing market expectations together. Subsidies will be directed at approximately 15% to 20% of the purchase price for selected products, including mid-range smartphones and home appliances.
This is an expansion from last year’s 150 billion yuan program announced in the summer, and is a narrower range of products.
Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, told CNBC on Monday that Jacob Cooke said, similar to the way e-commerce companies sold certain products late last year, the new round of grants is “pretty substantial” and could possibly support retail sales.
There are skepticism that the impact of one-off grants will not last long, but Cook said there is a high chance that more grant programs will continue. He added that China’s “active” 5% GDP growth targets and consumption prioritization indicate that Beijing will do more to support growth without resorting to an old playbook of infrastructure spending.
Chinese Prime Minister Li Qiang submitted an annual report on government work last week, which boosted consumption as the biggest task of the year.
Laura Wang, chief equity strategist at Morgan Stanley, said it was the first time in a decade that Beijing has given him a huge priority on consumption. She added that the government’s work report cited “consumption” 27 times. This is the most mentioned in the decade.
While Beijing has not chased the US or other countries in handing out cash to consumers, Chinese policymakers increasingly acknowledge the need to counter the pressures of deflation at home.
China must focus more on domestic demand given the potential “new shock” to overseas demand, Shen Danyan, director of the government’s labor report drafting group and research director for the State Council, told reporters on Wednesday in Mandarin, translated by CNBC.
China’s retail sales increased 3.5% last year, slowing sharply from a 7.2% growth last year. Official data released on Sunday showed that inflation in China’s consumer prices fell below zero for the first time in over a year, in signs of a sustained decline in demand.
If prices are too low, it will become difficult to encourage businesses to increase consumer revenue, Chen Chang Shen, a member of the government’s labor report drafting group and deputy director of the State Council’s Research Bureau, said at the same press conference on Wednesday.
He noted that the work report requires four tasks to address the depressed price. They use greater efforts to prevent price wars and stabilize real estate prices by expanding financial support, lifting consumption and restricting regulations.
Real estate accounts for the majority of the wealth of Chinese households. The 2020 real estate market leverage crackdown spurred a slump that only began to turn around later last year after halting the decline in the real estate sector after a high-level policy call in September.
Real estate stabilization could have a significant impact on increased consumption, just like the wealth impact of stock market growth, according to Meng Lei, Chinese equity strategy analyst at UBS Securities.
Stocks have recovered in recent months after China’s stimulus announcement.
The 300 billion yuan for subsidies is due to an ultra-long increase in special government bonds in 2025. Last week, China said its deficit has risen to 4% as it pursues “active fiscal policy.”
NEW YORK, NY – September 19: During the Alibaba Group initial price offer (IPO) held in New York City on September 19, 2014, the Chinese flag flies outside the New York Stock Exchange. The New York Times reported yesterday that Alibaba had raised $21.8 billion in its first public offer so far.
Andrew Burton | Getty Images News
Also, helping emotions are signs that Beijing appears to be becoming more business-friendly. Chinese President Xi Jinping held an unusual meeting with entrepreneurs last month.
When businesses are more confident, they can hire more and raise wages. At last week’s high-level meeting, the Chinese Prime Minister pledged more effort to promote income growth for residents and facilitate the financial burden of low-to-mid-term income groups.
Officials have pledged more support for the care of seniors, children and the broader health care system.
To some extent, these measures will help reduce living expenses and free up potential consumption, said Pan Xiang, a macro forex analyst at Nanhua Futures.
Incremental pivot
Economists have long called for structural re-promoting revenue distribution systems, and have sought the policies needed to stimulate domestic consumption in meaningful ways.
The recent pledge is “Door [is] “We are a fan of the Chinese Analysis Center at the Asian Association Policy Research Institute,” said Michael Herson, a fellow at the China Analysis Center.
“We’re not there yet in terms of a very strong push,” he added.
Before more support came, the underdeveloped social safety net, gloomy job market and low wages encouraged households to save rather than spend, Hilson said.
According to the Economic Cooperation and Development Agency, household expenditures account for less than 40% of China’s GDP, significantly lower than the international average of around 60%.
EV, movies, sightseeing
A look at the implementation plan released by the National Development and Reform Commission released on Wednesday reveals how China thinks it will increase consumption.
The section describing the tasks for 2025 begins with the entire section on increasing consumption and investment. The report calls for efforts to “enhance spending” and will encourage the development of products and scenarios that will encourage consumers to spend.
But it’s not a call to support all kinds of shopping.
According to the report, the top of mind for policymakers is retail sales of “big ticket items.” China also said it would cut restrictions on real estate transactions and car purchases.
Part of the plan will include the development of an immersive scenario-experience economy that combines film, video games, tourism and traditional Chinese culture, similar to the surge in tourists associated with last year’s hit video game Black Myth: Wukong.
Beijing, China – January 15: People queue outside the Minisostore to purchase co-branded merchandise featuring characters from the game “Black Myth: Wukong” on January 15th, 2025 in Beijing, China. Miniso and Black Myth: Wukong will launch co-branded products on January 15th.
yi haifei |Chinese news service |Getty Images
Chinese authorities also said it would improve the “mechanism of increasing regular wages” along with the system of paid leave days. Chinese employees typically take paid leave of less than 10 years and some public holidays include days that must consist of working part of the weekend.
The report also discussed ongoing plans to subsidize good trade and upgrade equipment for consumers.
However, two parts of the subsection focus more on the investment in developing talent, infrastructure and ecological projects – technological innovation and building “security capabilities” in the basic research of household food supply.
China will soon be releasing more detailed plans to boost consumption, Zheng Shanjie, head of the National Development and Reform Commission, told reporters on Thursday.
Preliminary data shows sales from China’s first 81 billion yuan of consumption subsidies announced in January ahead of this month’s parliamentary meeting.
Retail sales of new energy vehicles, where buyers enjoy trade-in subsidies of up to 15,000 yuan, surged from almost 80% to 686,000 units in February of the previous year.
Smartphone sales from January 20th to January 26th surged to nearly 65%, over 9.5 million units from the same period last year, maintaining high levels in the next few weeks,” CounterPoint Research said in a report in late February.
The analysis said the grants are likely to encourage Chinese consumers to change their smartphones earlier than planned, especially when artificial intelligence capabilities are becoming more prominent. The company estimates its first quarter subsidies will generate at least 2-3 points of additional growth in smartphone sales in China this year.
