China’s latest action as part of efforts to increase consumption is not aimed at dramatically raising all types of spending.
Last week, the authorities of the Asian country decided to double the subsidies intended for the consumer trade-in program. The corresponding figure was increased to 300 billion yuan ($41.47 billion). It is worth noting that this growth of the reading is provided only for 2025. It is still unknown what the indicator will be next year. The relevant decision of the Chinese authorities in 2026 will depend on the circumstances of the situation in the economic system of the Asian country, which will be formed in 12 months.
The mentioned subsidies will range from 15% to 20% of the purchase price of some goods. In this case, among other things, it refers to products such as mid-range smartphones and home appliances.
The specified measures are an expansion from last year’s 150 billion yuan program. The authorities of the Asian country announced the mentioned program in the summer of 2024. It’s worth noting that in this case, the financing was intended for a narrower range of goods.
Jacob Cooke, co-founder, and chief executive officer of WPIC Marketing + Technologies, said last Monday, March 10, during a conversation with media representatives that the new round of subsidies is pretty substantial and is likely to support retail sales, similar to how companies that operating in the e-commerce area saw an increase in consumer demand for products of certain categories at the end of last year. In this context, it was also noted separately that there is some skepticism that the effect of a one-time subsidy will not last long. Moreover, Jacob Cooke said that China’s aggressive 5% gross domestic product (GDP) increase target and prioritization of consumption indicate that Beijing will do more to support economic growth, without relying as much on the infrastructure spending playbook that it had in the past.
Last week, the Prime Minister of the Asian country, Li Qiang, delivered the annual report on the work of the government. He described the increase in consumption as the main task for the current year.
Laura Wang, chief China equity strategist at Morgan Stanley, noted that for the first time in a decade, Beijing is paying such close attention to consumption. In this context, the expert separately noted that consumption is mentioned 27 times in the report on the work of the government of the Asian country. This figure is the highest in a decade. The intensification of the relevant mentions is an unambiguous signal of a change in Beijing’s strategy as a political center in the context of the approach to implementing activities to ensure the upward dynamic of the economic system.
China has not followed the example of the United States or other countries in handing out cash to consumers. The policymakers of the Asian country have recently increasingly made statements that contain evidence that they recognize the need to counter deflationary pressures within the state.
Shen Danyang, head of the drafting group of the Government Work Report and director of the State Council Research Office, said last week during a conversation with media representatives that Beijing should pay more attention to domestic demand, given the possibility of new shocks to demand abroad.
In 2024, retail sales in China showed an increase of 3.5%. It is worth noting that in this case, there is a sharp slowdown in the upward dynamic of the indicator. In 2023, retail sales in Asian countries increased by 7.2%.
According to official data released last week, consumer price inflation in China fell below zero in February for the first time in more than a year. In this case, there is a constant decrease in demand.
When prices are too low, it becomes difficult to encourage businesses to invest and increase consumers’ income. The corresponding statement was made last week by Chen Changsheng, a member of the drafting group of the Government Work Report and deputy director of the State Council Research Office. He noted that the work report provides four tasks to solve the problem of the depressed prices. In this case, it implies measures such as expanding fiscal support, working to increase consumption, using regulation to prevent price wars, and stepping up efforts to stabilize real estate prices.
Real estate accounts for the majority of household wealth in China. A crackdown on property market leverage in 2020 caused a sharp decline that began to turn around in the second half of last year. In September, Chinese policymakers officially called to halt the decline in the real estate sector.
The potential stabilization of the situation in the Asian real estate market may become a significant impact factor in the context of stimulating consumption growth, similar to the wealth effects from a rise in the stock market. The corresponding statement was made by Meng Lei, China equity strategy analyst at UBS Securities. The expert also drew attention to the expectations that the stock market in mainland China will become more strategically important.
Stock indexes have shown growth following Beijing’s statements on stimulus measures in recent months.
Subsidies worth 300 billion yuan were allocated by increasing the issuance of ultra-long special government bonds for 2025. Last week, China announced a growth in the budget deficit to 4% of GDP, as Beijing pursues a proactive fiscal policy.
It is also worth noting that the leadership of the Asian country signals a desire for a more friendly approach to interaction with business. In this context, an important event was that last month, the head of the People’s Republic of China, Xi Jinping, held a rare meeting with entrepreneurs, including representatives of the technology sector.
As businesses become more confident, they will be able to hire more employees and raise wages. Last week, the Chinese premier promised to make more efforts to promote the growth of income among the population and ease the financial burden for low- and middle-income groups.
Officials of the Asian country also pledged to strengthen support for the care of the elderly, children, and the healthcare system as a whole. They are of the opinion that the mentioned efforts are crucial to strengthening the safety net in China. According to them, the implementation of appropriate measures will allow people to feel comfortable spending more.
Pan Xiang, a macro foreign exchange analyst at Nanhua, said that the mentioned actions to a certain extent can help reduce the cost of living and release the potential for consumption.
It is worth noting that economists have repeatedly made statements about the need for a structural re-calibration of the income distribution system and policies, which they saw as necessary to effectively stimulate domestic consumption.
Michael Hirson, a fellow at the Asia Society Policy Institute’s Center for China Analysis, said that recent pledges signal that the door is cracking open, but there is still a very gradual movement by the leadership of the Asian country towards being comfortable with doing more direct support for consumption. At the same time, the expert noted that the moment has not yet come for a very forceful push. Michael Hirson said that before more support comes, an underdeveloped safety net, a gloomy labor market, and low wages will spur households to save rather than spend.
Data from the Organization for Economic Cooperation and Development shows that household spending accounts for less than 40% of China’s GDP. This figure is significantly lower than the global average reading, which is approximately 60%.
An implementation plan, released last week, from the National Development and Reform Commission reveals how the Asian country is thinking about boosting consumption.
The portion describing tasks for 2025 starts with an entire section dedicated to boosting consumption and investing. In this case, there is a call for efforts aimed at increasing spending power and encouraging the development of products and scenarios that would encourage consumers to spend. It is worth noting that the mentioned statements are not a call to support all types of shopping. Currently, Chinese policymakers are focused on retail sales of big-ticket items. The Asian country also announced its intention to reduce restrictions on deals in the real estate and car purchases sectors.
Moreover, Beijing’s plans envisage the development of the experience economy. In this case, immersive scenarios, combining cinema, video games, tourism, and traditional Chinese culture, are meant. An illustrative example of the materialization of this practice is the surge in tourists to historical sites associated with last year’s hit video game Black Myth: Wukong.
Besides, the Chinese authorities intend to improve the mechanisms of regular pay increases. Beijing also has similar plans for a paid vacation days system. In China, it is currently standard practice for employees to get fewer than 10 paid days off. Some public holidays include days that must be made up by working for part of a weekend.
Beijing also has a plan to further subsidize consumer goods trade-ins and equipment upgrades.
Besides, China is committed to developing talent, infrastructure, and environmental projects. Beijing also intends to build up security capacity in basic research for technological innovation and domestic food suppliers.
Zheng Shanjie, head of the National Development and Reform Commission, said last week during a conversation with media representatives that China will soon publish a more detailed plan to boost consumption.
Preliminary data indicate a sales boost in the Asian country from an initial 81 billion yuan in consumption subsidies announced in January, ahead of this month’s parliamentary meeting.
In February, retail sales of new energy vehicles, for which buyers receive subsidies of up to 15,000 yuan, increased by almost 80% in February compared with the figure recorded in the same period last year. The relevant data was published in the current week by China’s auto industry body. In February, 686,000 new energy vehicles were sold in the Asian country.
Smartphone sales in China for the week from January 20 to January 26 showed an increase of almost 65% compared to the same period last year. In quantitative terms, sales of the mentioned devices amounted to more than 9.5 million units. The relevant information is contained in the report, which was published by Counterpoint Research at the end of February. It was also noted that the upward dynamics of smartphone sales in China maintained a high pace in the following weeks.
It is likely that in an Asian country, subsidies encourage consumers to replace their smartphones earlier than the deadlines stipulated by the initial plans for appropriate actions. In this case, an important impact factor is also the integration of artificial intelligence functions into the mentioned devices that has already begun. Counterpoint Research predicts that the first quarter of 2025 subsidies will provide additional smartphone sales growth in the Asian country by at least two to three points this year.
It is worth noting that currently, in the context of the economic outlook, China is facing such negative circumstances as a decrease in the possibilities of external sources of GDP growth against the background of the observed geopolitical tensions. In this case, it is worth mentioning that the trade war between the Asian country and the United States is gradually beginning. US President Donald Trump has doubled tariffs on goods imported from China. The corresponding figure is 20%. Beijing retaliated by hiking levies on imports of US agricultural products and food worth $21 billion. At the same time, it is worth noting that last year exports were one of the main driving forces behind the growth of the Asian country’s economy. Obviously, in the context of Washington’s tightening trade policy, this upward dynamic GDP factor will weaken significantly. Against this background, China is forced to rely heavily on domestic sources of economic growth. Last year, export activity contributed to the Asian country’s record trade surplus of just under $1 trillion. Achieving such a result in 2025 will be significantly complicated by the circumstances of the current situation in the space of geopolitical relationships. It is also important for Beijing to make efforts to develop the homegrown technology sector in the context of the independence paradigm of this area. It is worth mentioning that the United States and some of its allies limited shipments of advanced chips and equipment for manufacturing microcircuits of the appropriate category to an Asian country. Against this background, it is becoming necessary for China to achieve such a goal of full-fledged technological sovereignty, which, among other things, can become a significant source of economic growth. It’s worth mentioning that the experience of the coronavirus pandemic became a kind of hint at the importance of technological sovereignty when global supply chains were disrupted due to various restrictive measures, which became a sensitive obstacle in terms of the possibility of implementing the production process.
