Beijing is facing mounting pressure as its latest consumer stimulus campaign prompts overwhelming demand for subsidies, particularly in wealthier provinces. The government’s programme to boost household spending by subsidising select goods has led to a surge in retail sales, which recently recorded the highest growth in over a year. However, the initiative is testing the limits of local authorities’ financial capacities.
The subsidy scheme, designed to incentivise trade-ins for home appliances and other select products, has quickly depleted allocated funds in several regions. Provinces such as Henan and the municipality of Chongqing have suspended the disbursement of subsidies and halted new applications, according to official statements and Chinese media reports. Meanwhile, Jiangsu and Guangdong have responded by imposing daily quotas to ration access to the programme.
These interruptions reflect the broader challenges Beijing faces in restoring consumer confidence. Authorities have identified domestic consumption as the core engine for economic recovery in 2025, particularly as the economy braces for escalating trade tensions, including anticipated tariffs from the United States.
To support this strategic pivot, the central government has doubled its issuance of ultra-long special sovereign bonds compared to last year, raising the budget for the cash-for-clunkers initiative to 300 billion yuan. Over half of these funds have already been distributed or are in the process of being allocated to local governments.
“The rapid use of the subsidies suggests the programme is effective in expanding sales of the products it targets,” said Ding Shuang, Chief Economist for Greater China and North Asia at Standard Chartered.
Nonetheless, the pace of uptake has raised questions about the sustainability of the programme. With some of China’s most affluent regions already exhausting their funds, the central government may need to reassess both the scale and structure of its stimulus mechanisms to avoid undermining its long-term fiscal and economic goals.
-Bloomberg
