China has signaled in its own way that it wants to support certain types of consumer purchases. Authorities announced on Thursday that the equivalent of 300 billion yuan ($41.5 billion) of special bonds will go toward swaps and equipment upgrades — a major expansion of an existing program. “Compared with previous policies on equipment upgrades and swaps for consumer goods, the new policy support is larger in amount (the allocation level has been increased) and the sources of funds are clearly defined,” Ding Wenjie, investment strategist for global capital investment at China Asset Management, said in a note. “The central government’s share of burden is also higher (central:local = 9:1), which should speed up the implementation of the policy,” Ding said. “The program also covers more areas, such as trucks, machinery, home decoration and smart home appliances, in addition to the previously announced automobiles and home appliances.” She expects automobiles, industrials and home appliances to benefit. The policy calls for at least doubling subsidies for the purchase of new energy and conventional fuel-powered vehicles to 20,000 yuan and 15,000 yuan per vehicle, respectively. The policy also sets out specific subsidies for home renovations and consumer purchases of refrigerators, washing machines, televisions, computers, air conditioners and other home appliances. Each consumer can get subsidies of up to 2,000 yuan for a single purchase in each category, the document said. Shares of major Chinese home appliance companies surged on Friday. The top three mainland-listed companies in that category — Midea, Gree and Haier — rose between 5.8% and 8.3%. That contrasted with modest gains in broader mainland indexes. The 300 billion yuan long-term bond issuance is not a new government allocation, but a more detailed designation of a 1 trillion yuan long-term bond program announced earlier this year. “The amount exceeds market expectations; we expect equipment stocks to react positively,” Morgan Stanley analysts said in a report on Friday. “The 300 billion yuan is the largest equipment upgrade subsidy from the central government in history,” the analysts said. Among the stocks they cover, they expect Inovance to be one of the few “that benefit most from higher replacement subsidies for cars and/or home appliances.” Chinese authorities have resisted cash subsidies for consumers despite slowing retail sales growth. Instead, Beijing has made clear its focus is on building domestic technological capabilities. Even the 300 billion yuan figure is roughly split between consumer-related replacements and equipment upgrades by businesses. “We see a decent boost to household consumption in China (150 billion yuan is equivalent to 0.3% of annual retail sales in 2023) and corporate capital, but the overall impact on GDP growth is likely to be limited, given that funding support for infrastructure may be smaller than otherwise,” Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank, said in a note. The latest consumer measures come on the heels of the third meeting of the Communist Party of China’s twice-a-decade Central Committee, which typically sets the tone for longer-term economic policy. A Politburo meeting focusing on the near term is expected at the end of the month. “The third meeting of the CPC Central Committee suggested that ensuring and improving people’s livelihoods during development is a major task on China’s path to modernization,” said Darius Tang, associate director of corporates at Fitch Bohua. “With sustained rapid growth in household savings and relatively slow consumption… we expect the Chinese government to increase investment in education, healthcare and pensions, which are directly linked to people’s livelihoods and well-being, which will ease public concerns, boost consumer confidence and convert the current excessive household savings into consumption.” CNBC’s Michael Bloom contributed to this report.
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China has just expanded its efforts to boost consumption. Here are some stocks to watch
