China has begun using long-term treasury bonds to finance appliance replacement programs, marking a shift in Beijing’s traditional economic stimulus strategy, Reuters reports.
China’s state planning agency announced on Thursday that approximately 150 billion yuan ($29.7 billion) out of the 1 trillion yuan that China will raise this year through special bond issuance will be used to subsidize programs for exchanging old appliances, cars, bicycles, and other goods.
Equivalent to 0.12% of economic output and 0.3% of retail sales in 2023, this amount is too small to significantly rebalance China’s economy towards consumption or ensure that China meets its economic growth target of 5% set for this year.
However, the initiative highlights Beijing’s concern that consumer confidence is near historic lows, prompting the government to finally test tools long recommended by economists but previously unused.
Traditionally, funds raised from the issuance of special bonds have been used by Beijing to finance “strategic” infrastructure or security-related investments.
China’s Hesitant Response to Economic Changes
“The way these funds are used is changing in response to shifts in the economy. This is a significant change. The most serious issue facing the economy is weak demand, so boosting domestic demand will become a more important policy option,” said Ni Wen, an economist at Hwabao Trust.
China launched appliance replacement schemes in March, but so far Beijing has only involved local governments with limited funds to finance these programs, resulting in modest outcomes. While the total funds allocated since March remain unknown, appliance sales in June were 7.6% lower compared to the same month last year, and car sales fell by 6.2%.
Consumer subsidy programs are rare in China, and the amounts provided are far from those seen in the US and other countries during the pandemic.
