The $ 41 billion plan of China to stimulate consumption is only a start

BEIJING – The newest step from China to stimulate consumption is not intended to shock all kinds of expenses.

Last week, policymakers doubled subsidies for a trade-in to 300 billion yuan ($ 41.47 billion) this year, matching market expectations and again from the hand of cash-handouts. The subsidies go to around 15% to 20% of the purchase price for selected products, including mid-range smartphones and home equipment.

That is an extension of last year’s 150 billion Yuan program announced in the summer, for a narrower range of products.

The new round of subsidies is “quite substantial” and will probably support retail sales, comparable to how e-commerce companies saw a sales boost in certain products at the end of last year, Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, told CNBC on Monday.

Although there is skepticism that the impact of a one -off subsidy will not take long, Cooke said that more subsidy programs will probably follow. He added that China’s “aggressive” 5% GDP growth tit and prioritization of consumption indicate that Beijing will do more to support growth – without trusting the old Playbook or infrastructure expenditure.

The Chinese Prime Minister Li Qiang yielded an annual report last week on government work that called the consumption of boosting as the best task for the coming year.

That is the first time in a decade that Beijing consumption has given such a high priority, said Laura Wang, Chief China Equity Strategist at Morgan Stanley. She added that the government’s work report called 27 times “consumption” – most of the entries in a decade.

Although Beijing has not followed the US or other countries to hand out cash to the consumer, Chinese policy makers have increasingly recognized the need to combat deflatory pressure at home.

China has to concentrate more on the domestic question, in view of the possibility of “new shocks” for the overseas question, Shen Danyang, head of the Trapting Group of the Government Work Report and director of the Research Office of the State Council, on Wednesday to reporters in Mandarin, translated by CNBC.

China Retail sales grew by 3.5% last yearA sharp delay of 7.2% growth in the previous year. In a sign of a persistent decrease in question, China The inflation of the consumer prize in February fell below zero for the first time in more than a year, according to official data released on Sunday.

If the prices are too low, it becomes difficult to encourage companies to invest and increase the income of the consumer, Chen Changheng, member of the hiking Group of the Government Work Report and deputy director of the State Council Research Office, said at the same press conference on Wednesday.

He noted that the work report called on four tasks to address depressive prices: expanding tax support, working on levying consumption, using regulations to prevent price wars and to make greater effort to stabilize real estate prices.

Real estate acquires most of the household richness in China. A performance against leverage on the real estate market in 2020 led to a malaise that only began to change at the end of last year a high-level policy call in September to stop the decline of the real estate sector.

Stabilizing real estate can have a significant effect on stimulating consumption, similar to power effects of an increase in the stock market, said Meng Lei, China Equity Strategy Analyst at UBS Securities, and it appears that the Chinese Chinese market for mainland China has become strategic.

Stocks are rally after the Chinese stimulus announcements in recent months.

The 300 billion Yuan for the subsidies comes from an increase in ultra-long special government bonds for 2025. China said last week that it increases its deficit to 4% because it pursues “proactive tax policy”.

Sentiment also helps his signs that Beijing seems to be more uncomfortable. Chinese President Xi Jinping held a rare meeting with entrepreneurs last month.

As soon as companies are more self -assured, they can hire more and increase wages. The Chinese Prime Minister during the high -level meeting last week promised more efforts to promote the income growth of residents and to facilitate the financial charges for income groups with low to middle.

The officials promised more support for the care for the elderly, children and the broader health care system, steps that were crucial to strengthen the safety net of the country, so that residents could feel comfortable.

To a certain extent, these measures can help to reduce lifestyle and release potential consumption, said Pan Xiang, a Macro -Eviezen analyst at Nanhua Futures.

Economists have long since called for one Structural relocation of the income distribution System and policy needed to stimulate domestic consumption in a meaningful way.

The recent promises indicate that “the door [is] Open open “yet” very gradual movement of leadership to be comfortable with more direct support for consumption, “said Michael Hirson, a fellow at the Center for China Analysis of Asia Society Institute.

“We are not really there yet in terms of a very powerful push,” he added.

Before more support comes, an underdeveloped social safety net, a gloomy labor market and low -wage households have insisted to save instead of publishing, said Hirson.

Household expenses are good Less than 40% of GDP from Chinaconsiderably lower than the international average of around 60%, According to the organization for economic cooperation and development.

A glance at an implementation plan, released on Wednesday, from the National Development and Reform Commission reveals how China thinks about stimulating consumption.

The part that describes tasks before 2025 starts with a complete section on stimulating consumption and investments. The report calls for efforts to “increase power power” and to encourage the development of products and scenarios that would encourage consumers to publish.

But it is not a call to support all kinds of stores.

Top of Mind for Policy makers is the retail trade of “Big-ticket articles”, the report said. China also said that restrictions on real estate transactions and car purchases would reduce.

Part of the plan includes the development of the experience economy – compelling scenarios that combine film, video games, tourism and traditional Chinese culture – similar to the increase in tourists to historical sites associated with the hit video game “Black Myth: Wukong” last year.

The Chinese authorities also said that they would improve “mechanisms for regular wage increases”, together with the system for paid vacation days. Employees in China usually receive less than 10 days paid and different holidays include days that must be made by working part of a weekend.

The report also discussed the continuous plan for subsidizing good trade-in-ins from consumers and upgrading equipment.

But two parts of the subsection were more focused on investing the development of talent, infrastructure and ecological projects-equals the building of “security capacity” in basic research for technical innovation and domestic food supply.

China will soon release a more detailed plan for stimulating consumption, Zheng Shanjie, head of the National Development and Reform Commission, on Thursday, reporters said.

Preliminary data indicate a sales boost of the initial 81 billion yuan of China of consumption subsidies announced in January, prior to this month’s parliamentary meeting.

Shop sales of new energy vehicles, for which buyers enjoy Trade-in subsidies of up to 15,000 YuanIn February almost 80% rose to 686,000 units from a year earlier, Data from the Chinese car -Industry -Isting was demonstrated on Monday.

Smartphone sales for the week from January 20 to January 26 increased by almost 65% of the period of the year ago Up to more than 9.5 million units, “and maintained a high level in the following weeks,” said counterpunt study in a report at the end of February.

The analysis said that subsidies will probably encourage Chinese consumers to replace their smartphones earlier than planned, especially when artificial intelligence functions become known. The company estimates the subsidy of the first quarter to generate at least two to three points of extra growth this year in the sale of smartphones in China.