Summary of Key Points
In the first half of 2026, the Ministry of Commerce announced a policy that led to impressive results: 1.1 trillion yuan in sales and benefited 150 million people through the trade-in program. However, the overall growth rate of retail sales of consumer goods was only around 1%, with sales of automobiles and household appliances even declining year-on-year. The essence of this contradiction is that the trade-in policy did not create new consumption; it merely shifted future demand to the present and moved the demand for non-subsidized products to subsidized ones. The benefits of the policy mainly went to leading companies and developed regions, while also bringing about concerns such as dependence on subsidies, regional imbalances, and fraud. In the long run, this could potentially deplete consumer potential.
I. Why Didn’t the 1.1 trillion yuan in sales generate overall consumption growth?
The 1.1 trillion yuan from trade-ins did not represent new money; rather, it was a result of time displacement and structural transfer of demand:
- Time displacement: For example, if you were planning to buy a new car next year but bought it this year due to the subsidy, you might not purchase one in the following years.
- Structural transfer: Subsidies only cover specific categories like automobiles and household appliances, causing consumers to shift their spending from other non-subsidized items (such as clothing and food) towards these subsidized products.
Data illustrates this: In the first half of the year, 3.707 million vehicles were traded in (with sales amounting to approximately 550 billion yuan), but overall automobile retail sales decreased by 12.6%—meaning that only old cars were replaced with new ones, without any additional buyers. Similarly, 63 million household appliances were traded in, yet retail sales of these products fell by 7.4%. The sales boost from subsidies was not enough to offset the decline in non-subsidized appliances.
In other words, the policy merely reallocated existing spending rather than expanding the overall consumer market.
II. Who Reaped the Biggest Benefits from the Policy?
There were two main groups of winners:
1. Leading Manufacturing Companies:
- For household appliances, companies like Haier, Midea, and Gree reported net profit growth rates of over 9% in their third-quarter reports of 2025. They had the funds to cover the subsidies, access to consumers, and brand recognition, allowing them to secure most of the orders.
- In the energy vehicle sector, new energy vehicles accounted for 65.4% of subsidy expenditures in June, with a penetration rate of 62.4% in the second quarter. Companies like BYD, Tesla, and Xpeng dominated this benefit, further squeezing traditional fuel vehicles.
2. Large Retailers/Chain Stores:
The policy required retailers to pay for the subsidies in advance before claiming them from the government, with a threshold of annual sales exceeding 5 million yuan. Small businesses lacked the funds to meet this requirement and were thus excluded from the benefits, leaving large retailers like Suning and Gome in a position to profit significantly.
III. Who Bears the Cost of the Subsidies?
The cost of the subsidies is ultimately shared by the government and consumers:
- Local Governments Under Pressure: The central government provided most of the funding through special bonds, but local governments had to match it. Provinces with strong manufacturing sectors (such as Guangdong and Zhejiang) saw tax revenues increase due to local production and consumption, while agricultural provinces (like Henan and Gansu) faced fewer tax revenues and thus had to bear a larger portion of the cost. This exacerbated regional imbalances.
- Consumers Being Exploited: There is a common practice in the appliance industry where prices are raised first and then subsidized, resulting in consumers paying almost the same amount as before the subsidy. Some retailers also bundle subsidies with discount coupons, forcing customers to buy additional goods to qualify for the subsidy, effectively costing them more.
IV. What Hidden Issues Does the Policy Pose?
1. Dependence on Subsidies: Consumers have become accustomed to waiting for subsidies before making purchases, leading to a situation where consumption stops without them. For example, the increased subsidy ratio (from 1:7.8 to 1:10.3) indicates greater consumer dependence on subsidies, suggesting that these purchases would not happen without them.
2. Fraud: Subsidies create opportunities for fraud, such as selling the same old vehicle multiple times, conducting fake transactions, or using bots to purchase goods. By March 2025, more than 126 companies and individuals in over a dozen provinces had been reported for subsidy fraud, with some cases being prosecuted.
3. Long-Term Impacts on Consumption: Families that trade in vehicles or appliances this year are less likely to do so in the next 3-5 years, potentially leading to weaker consumption in the future.
4. Distorted Competition: The policy aims to support various entities, but small businesses are excluded due to financial barriers, leading to higher industry concentration and undermining fair competition.
V. How Long Will the Policy Continue? What Should Be Considered for the Future?
The trade-in program is likely to continue (with additional subsidies for digital products like smartphones and tablets in 2026), but three factors will determine its effectiveness:
1. Financial Sustainability of Local Governments: With tight land finances and high debt levels, some regions may be unwilling to provide the required funding, potentially reducing the impact of the policy.
2. Consumer Fatigue: Those who initially needed subsidies have already taken advantage of them; others may lack the money or still have usable products, diminishing the policy's effectiveness over time.
3. Impact on Industries: Subsidies for new energy vehicles and smart appliances could accelerate the decline of traditional fuel vehicle and basic appliance industries, potentially causing job losses and production disruptions.
Conclusion: The trade-in program serves as a short-term remedy for stabilizing growth but is not a solution to sustained economic expansion. True consumption growth depends on increased income and stable employment. If income expectations do not improve, subsidies merely shift current spending to earlier periods, leaving future consumption at risk. The real concern is whether consumption will plummet once the subsidies are phased out.