China’s plan to boost consumption by encouraging trade-ins has yet to show

BEIJING — China’s plan to boost consumption by encouraging trade-ins has yet to show significant results, several businesses told CNBC.

China in July announced allocation of 300 billion yuan ($41.5 billion) in ultra-long special government bonds to expand its existing trade-in and equipment upgrade policy, in its bid to boost consumption.

Half that amount is aimed at subsidizing trade-ins of cars, home appliances and other bigger-ticket consumer goods, while the rest is for supporting upgrades of large equipment such as elevators. Local governments can use the ultra-long government bonds to subsidize certain purchases by consumers and businesses.

While the targeted move to boost consumption surprised analysts, the measures still require China’s cautious consumer to spend some money up front and have a used product to trade in.

“We are not aware of companies that have seen this translate, since the promulgation of the measures, into concrete incentives on the ground in China,” Jens Eskelund, president of the EU Chamber of Commerce in China, told reporters earlier this week.

“Our encouragement would be that now we focus on execution [for] visible, measurable results,” he said.

The chamber’s analysis found that the central government policy’s total budgeted amount is about 210 yuan ($29.50) per capita. Given that “only a portion of [it] will reach household consumers, it is unlikely that this scheme alone will significantly increase domestic consumption,” organization said in a report published Wednesday.

Analysts are not overly optimistic about the extent to which the trade-in program could support retail sales.

UBS Investment Bank Chief China Economist Tao Wang said in July that the new trade-in program could support the equivalent of about 0.3% of retail sales in 2023.

China’s retail sales for August are due Saturday morning. Retail sales in June rose by 2%, the slowest since the Covid-19 pandemic, while July sales growth saw a modest improvement at 2.7%.

New energy vehicle sales, however, surged by nearly 37% in July despite a drop in overall passenger car sales, according to industry data.

The trade-in policy more than doubled existing subsidies for new energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 yuan per car, respectively.

In March and April, China had already started to roll out policy broadly supporting equipment upgrades and consumer product trade-ins. Around the measures announced in late July, officials noted 800,000 elevators in China had been used for more than 15 years, and 170,000 of those had been in service for more than 20 years.

Two major foreign elevator companies told CNBC in August they had yet to see specific new orders under the new program for equipment upgrades.

“We are still at the very early stage on this…