Consumption support comes with caveats

Central government funding to stimulate consumption is less than meets the eye.

On Wednesday, the State Council published an action plan to promote the old-for-new trade-in program for consumer goods first mooted in February and then promised in the 2024 Government Work Report unveiled on March 5.

Per the State Council's action plan, the program will focus on:

• Automobiles
• Home appliances
• Home furniture

At first glance, the central government appears to be offering significant financial support for the program.

• Local governments can tap central carbon reduction funds to support the trade-in of eligible vehicles.
• Localities are encouraged to utilize central funds for "developing local commercial facilities" – such as building shopping centers, pedestrian shopping areas, and improving retail logistics – to support home appliance and furniture trade-ins.

The action plan also encourages localities “with the capacity” to subsidize green, smart home appliance purchases.

Get smart: Central government financial support is way less than meets the eye.

• The central carbon reduction funds are only applicable for those purchasing NEVs – this may generate demand at the margins, but NEV prices are already at all-time lows, limiting the price responsiveness of consumers to further discounts.
• The central funds for "developing local commercial facilities" have already been allocated to local governments – the action plan doesn't provide new funding, but rather, encourages localities to earmark distributed funds for trade-in programs.
• Finally, cash-strapped local governments don't have the means to subsidize home appliances.

The upshot: As we've said before, this plan is weak sauce.