Steps Taken to Boost Domestic Demand in China

In an effort to stimulate the economy, China is implementing robust measures to encourage large-scale equipment upgrades and the trade-in of consumer goods. As the second-largest economy in the world faces both domestic and international challenges, increasing demand has become a vital priority for government officials and economic experts.

The plan includes significant funding through ultra-long-term treasury bonds, which will expand the range of items eligible for trade-ins. These actions aim to boost investments and increase consumption, ultimately benefiting households and companies across the nation, as experts suggest this will create positive momentum for economic recovery.

Previous experiences have shown that such initiatives are effective in increasing consumer demand and stimulating investment growth. Zhao Chenxin, deputy head of the National Development and Reform Commission, highlighted that these efforts not only support industrial upgrades but also assist in transitioning towards greener practices.

According to the commission, retail sales of new energy vehicles are projected to reach an impressive 11 million units in 2024. Furthermore, the total equipment upgrades in key sectors of the economy are expected to exceed 20 million units.

With US President-elect Donald Trump planning to impose substantial tariffs on Chinese goods, it becomes even more critical for China to boost domestic demand in both investment and consumption to counteract potential external economic shocks, says Zhang Yongjun from the China Center for International Economic Exchanges.

Zhang emphasizes that building strong domestic demand is not just a short-term response; it is essential for China's long-term growth and modernization goals. The government’s initiatives can serve as significant tools in achieving this objective.

The scope of the equipment upgrade program has expanded significantly this year, with a clear focus on adopting high-end, intelligent, and environmentally friendly technologies. The government is offering financial support to subsidize loan interest, making it easier for businesses to lower their financing costs.

By investing in modernizing old equipment with advanced technologies, the government aims to drive effective investments and enhance the operational efficiency and competitiveness of industries involved, as noted by Dong Yu, executive vice-president of the China Institute for Development Planning at Tsinghua University.

In addition, there is an increased emphasis on consumer goods trade-ins. New categories such as mobile phones, tablets, and smartwatches will also qualify for subsidies, which were previously unavailable.

The funding pot for last year’s trade-in initiative was approximately 150 billion yuan (about $20.5 billion), which created a multiplier effect, reportedly leading to a 2.5-fold increase in new consumer spending. Wang Qing, the chief macroeconomic analyst at Golden Credit Rating International, predicts that this year’s funding will double to 300 billion yuan.

Wang estimates that this increased funding could generate about 750 billion yuan in new sales, translating into a growth acceleration of 1.5 percentage points in the year-over-year total retail sales of consumer goods by 2025.

Recently, the central government provided 81 billion yuan upfront for the consumer goods trade-in program for 2025. Officials will assess a variety of factors—including demographics, regional GDPs, and household ownership of automobiles and appliances—to determine the suitable funding ratios for different regions in the country.

Areas that showed the most promising results with trade-ins in the previous year will be prioritized for funding, according to Fu Jinling, an official from the Ministry of Finance.

Demand, Economy, Investment