In an attempt to stimulate consumption and revive the domestic market, China launched a consumer goods trade-in scheme in 2024, focusing on sectors like automobiles, home appliances, and electric bicycles. The initiative was part of broader efforts to encourage consumer spending and drive economic recovery, which had been sluggish due to various internal and external pressures. According to Vice Commerce Minister Sheng Qiuping, the scheme contributed an additional 1 percentage point to China’s retail sales growth, helping the country reach a 3.5% year-on-year increase in retail sales for 2024. This surge was attributed to the trade-in program, which facilitated sales worth 1.3 trillion yuan ($179.45 billion).

The trade-in scheme allowed consumers to exchange their old goods for subsidies when purchasing new products, helping to rejuvenate sales in key sectors. This was seen as a timely move to boost consumption, especially in the context of a sluggish economy. The program was particularly beneficial in the automotive and home appliance markets, where many households were encouraged to upgrade older products in exchange for new ones, often at a reduced cost due to the government subsidies.

To further enhance the program’s reach, China expanded the list of qualifying products for trade-ins, adding more home appliances and digital goods in 2025. These measures were designed to meet the growing demand for modernized household goods and stimulate the digital economy, which had seen slower growth compared to other sectors. The government’s plan also included integrating domestic and foreign trade development to create a more comprehensive economic boost.

Despite these optimistic figures, analysts caution that the long-term impact of the trade-in scheme may be limited. Some, like Ting Lu, chief China economist at Nomura, have pointed out that while the program initially boosts sales, particularly in durable goods such as cars and home appliances, this increase is likely to be short-lived. The nature of durable goods, which have a long lifespan, means that once households have made their purchases, the demand will naturally slow down. Additionally, there may be a substitution effect, with consumers opting to purchase durable goods over other non-durable items, potentially skewing the broader retail market.

While the scheme has effectively driven sales in the short term, the risk remains that the positive effects may not be sustainable. The government’s decision to allocate 150 billion yuan from the issuance of special treasury bonds to subsidize these purchases indicates the scale of the initiative, but it also highlights the reliance on continuous financial support. If the consumer trade-in program does not evolve into a more self-sustaining model, the growth it spurred could fade, leading to a potential market correction in the second half of 2025.

In conclusion, while the consumer goods trade-in scheme in China has provided an immediate boost to the retail sector, its long-term sustainability remains uncertain. The program’s success hinges on how well it can adapt to changing consumer behaviors and whether it can maintain its momentum beyond the initial wave of purchases. If managed effectively, it could lay the foundation for more durable consumption growth, but the challenges of maintaining such growth in the face of market saturation and economic uncertainty cannot be overlooked.

(Adapted from Reuters.com)