China's plan to boost consumption by encouraging trade has yet to show results

BEIJING – China's plan to boost consumption by encouraging swaps has yet to show significant results, several companies told CNBC.

China announced in July it would allocate 300 billion yuan ($41.5 billion) in special long-term government bonds to expand its existing trade and equipment modernization policies, in an effort to boost consumption.

Half of that money is intended to support trade-ins of cars, appliances and other larger consumer goods, while the rest is earmarked to support upgrades to large equipment such as elevators. Local governments can use long-term government bonds to support certain purchases by consumers and businesses.

Although the move to boost consumption has surprised analysts, the measures still require cautious Chinese consumers to spend some money up front and have a used product to trade.

“We are not aware of any companies that have seen this translated, since the measures were issued, into tangible incentives on the ground in China,” Jens Eskilund, president of the European Union Chamber of Commerce in China, told reporters earlier this week.

“What we are encouraging now is to focus on implementation in order to get visible and measurable results,” he said.

The chamber's analysis concluded that the total amount allocated by the central government's policy is about 210 yuan ($29.50) per person. In a report released Wednesday, the chamber said that “only a portion of this amount will reach household consumers, and this scheme alone is unlikely to significantly increase domestic consumption.”

But analysts are not overly optimistic about how much the trade-in program will be able to boost retail sales.

The new barter scheme could support the equivalent of about 0.3% of retail sales in 2023, Tao Wang, chief China economist at UBS Investment Bank, said in July.

China's retail sales data for August is due out on Saturday morning. Retail sales in June rose 2%, the slowest since the Covid-19 pandemic, while sales growth in July saw a modest improvement of 2.7%.

However, sales of new energy vehicles rose about 37% in July despite a decline in passenger car sales overall, according to industry data.

The swap policy has doubled existing subsidies for the purchase of new energy and conventional fuel vehicles to 20,000 yuan and 15,000 yuan per car, respectively.

In March and April, China had already begun to roll out a policy that broadly supported equipment upgrades and consumer product exchanges. In the measures announced in late July, officials noted that 800,000 elevators in China had been in use for more than 15 years, and 170,000 of them had been in service for more than 20 years.

Two major foreign elevator companies told CNBC in August that they had yet to see specific new orders under the new equipment modernization program.

“We’re still in a very early stage of this whole program right now,” said Sally Luo, president of China operations for U.S. elevator company Otis. She said the companies know the total cash amount, but “in terms of how much is going to the elevators, it’s not really been made clear.”

“We certainly see a lot of interest from local government to make sure that this kind of funding from central government is effectively deployed to residential buildings that need this replacement,” she said, noting that the announced funding “really helps to solve some of the funding issues that we saw were a big concern for our clients.”

Otis’ new equipment sales fell by double digits in China during the second quarter, according to an earnings statement. Revenue wasn’t broken down by region.

Finnish elevator maker Kone said its revenue in Greater China fell more than 15% in the first six months of 2024 year-on-year to 1.28 billion euros ($1.41 billion), due to the property slump. That was still more than 20% of Kone’s total revenue in the first half.

“We are very excited about this opportunity. We have been excited about it for a long time. It is a catalyst that will enable many people to make the decision,” said Ilka Hara, KONE’s CFO.

“I definitely see opportunity in the future, but it's hard to say how quickly it will materialize,” he said.

Hara noted that the new elevators are capable of saving more energy than older models, and said KONE plans to grow its elevator service business in addition to unit sales.

It may take some time for central government policies to be implemented at the local level. Several major cities and provinces have only announced details of how the barter program will work for residents in the past few weeks.

to AtrineoRex Chen, chief financial officer of Amazon, which operates stores that process used goods, said the government's long-term bond program to support trade-ins had no short-term impact.

But he told CNBC that the policy supports the long-term development of the second-hand market, and he hoped there would be more government support for building trading stalls in local communities.

ATRenew focuses on pricing and reselling selected used products — and the company claims to have become Apple's trade-in partner in mainland China last year.

Trade volume has surged this summer in specific categories and regions — such as mobile phones and laptops in parts of Guangdong Province, Chen said.

Exchange requests from e-commerce platform JD.com have increased by more than 50% year-on-year since the new policy was introduced, according to ATRenew, which did not provide a timeframe.

— CNBC's Sonia Heng contributed to this report.

Correction: This story has been updated to reflect that ATRenew is Apple's commerce partner in mainland China.