China banks on trade-in plan to give growth a jolt with tax breaks, loans
- China has released more details on a planned initiative to replace industrial equipment and consumer goods through large-scale trade-ins
- Programme likely to boost spending and hasten upgrade speed for big-ticket items like automobiles, but overall growth impact less certain
China has launched a large-scale trade-in scheme to upgrade its stock of industrial equipment and drive spending on consumer goods – one part of a larger effort to meet an ambitious annual target for economic growth – but it remains an open question whether private manufacturers and households will take part in the government initiative, and for those that do how extensive their participation will be.
In a circular released on Wednesday, the State Council, the country’s cabinet, said China aims to increase investments for equipment in heavy industry, construction, agriculture, transport, education and healthcare by at least 25 per cent in 2027 compared to last year.
It is also encouraging over 90 per cent of its industrial enterprises with revenues in excess of 20 million yuan (US$2.8 million) to leverage digital research and design tools in production as a means of loss reduction.
Big-ticket items like automobiles, home appliances and furniture are high on the priority list for the trade-in programme.
The central government is planning to double the volume of end-of-life vehicles recycled by 2027 compared to 2023, with a 30 per cent increase in the recycling rate for used appliances during the same period.
Upgrades in equipment and consumer goods will receive support from the central budget, as well as tax incentives and bank loans, the council said without providing specific figures.
‘Smarter investment needed’: China must fix overcapacity as it eyes new growth
Meanwhile, the trade-in programme itself is expected to boost demand for cars and home appliances by 629.3 billion and 210.9 billion yuan respectively and contribute to 0.16 to 0.5 percentage points of GDP growth, the Bank of China estimated in a report last week.
Gary Ng, a senior economist with Natixis Corporate and Investment Banking, said Beijing’s policies will need to stay accommodative and largely state-driven if its 2027 goals are to be achieved.
Households and private firms may lack a strong incentive to leverage and spend from bank loans alone, he said, adding the benefits of the policy will be more direct for state-owned firms with ongoing investment.
“It is unlikely to have a major impact unless Chinese households regain their ‘animal spirit’ in anticipating income and wealth growth, meaning the tendency to save will reduce,” he added.
The programme helped China survive the crisis, to a certain extent. According to figures from the Bank of China, the 40 billion yuan in subsidies boosted GDP growth by 0.33 percentage points in 2010 and 0.32 in 2011.