In China’s latest measure to stimulate the economy, Beijing announced the direct allocation of 300 billion yuan (about $41.4 billion) of ultra-long-term treasury bonds to local governments to support equipment upgrades and consumer goods trade-in projects.
Analysts pointed out that with foreign capital withdrawal, production overcapacity, sluggish domestic demand, and downgraded consumer spending, the money from the bonds invested by the authorities will have limited effect and may be embezzled by local officials.
The ruling Chinese Communist Party’s (CCP’s) National Development and Reform Commission (NDRC) and its Ministry of Finance announced the measure on July 25, stating that the allocation is to “step up support for large-scale equipment upgrades and trade-ins of old consumer goods.”
The authorities stated that about 150 billion yuan (about $20.7 billion) of ultra-long-term special treasury bonds would be directly allocated to local governments to “independently implement the old-for-new policy for consumer goods.” The official notice also states that another 150 billion yuan (about $20.7 billion) from the bonds would be allocated to support enterprise equipment upgrades while removing the previous requirement of ”total project investment of no less than 100 million yuan.”
Subsidies Won’t Have Much Effect
Hsieh Chin-ho, chairman of Taiwan’s Wealth Magazine, told the Chinese edition of The Epoch Times that 300 billion yuan is not a large amount, “given that China’s domestic demand is very weak, e-commerce profits have caused a great compression of physical stores, ... the real estate bubble has burst, and people are afraid to consume.”“Now, the performance of many high-end consumer goods has obviously declined,” he said.
“Domestic demand is weak, and the 300 billion yuan is a very small amount. The core problem of the real estate bubble has not been solved.”
Mr. Hsieh noted that China’s economy was able to develop rapidly in the past because of foreign investment, “a large part of which was Taiwanese businessmen’s continuous investment and sending talents to China.”
“Now, Taiwanese businessmen are moving their money out, and everyone is leaving China,” he said. “Cross-strait relations are more tense, including the recent 22 articles [the CCP’s ‘anti-Taiwan independence’ law], which will accelerate the escape of Taiwanese businessmen from China. Not only is there [less] capital coming into China, but capital is constantly fleeing out.”
He predicted that the Chinese economy would face greater difficulties in the future.
The CCP authorities emphasized in the notice that the funds directly allocated to local governments “must not be used to balance local budgets or repay local government debts” and must be used for specified purposes and that “illegal and irregular acts such as misappropriation, fraud, and subsidy fraud” must be strictly prevented.
However, Mr. Hsieh pointed out that local governments at all levels in China are not transparent, making corruption possible.
“Local governments used to sell land as their financial resources,” he said. “Now that the financial resources are cut off, you don’t know whether the 300 billion yuan will be swallowed up by them after it is distributed.”
Xu Xingfeng, an official from the Consumer Promotion Department of the CCP’s Ministry of Commerce, said at a July 25 press conference that China’s domestic consumption was under “greater pressure” in the first half of this year. But he claimed that if the “four pillars” of consumption—automobiles, home appliances, household goods, and catering—could be stabilized, consumption could be stabilized.
He said of the car trade-in subsidy: “For individual consumers who scrap their old cars and buy new ones, the subsidy standard will be increased from 10,000 yuan [$1,379] per car for new electronic vehicles to 20,000 yuan [$2,758], and for petrol cars, it’s increased from 7,000 yuan [$965] to 15,000 yuan [$2,069]. Buyers of some home appliances such as televisions, air conditioners, and computers will receive subsidies equivalent to 15 percent to 20 percent of their sales price, but the subsidy per item will not exceed 2,000 yuan [about $276].”
Xu Zhen, a senior Chinese capital market analyst, told The Epoch Times that the CCP introduces similar stimulus policies every year but that their effect on boosting the economy is limited.
“For home appliances, the policies to replace old ones with new ones were actually introduced from 2008 to 2012,” he said. “The subsidy at that time was 13 percent, and now it is 15 percent to 20 percent, which is not a big increase. For new electric vehicles, the vehicle purchase tax subsidy was 12,600 yuan [$1,738] per vehicle before 2022, and now it is 20,000 yuan [$2,758]. The increase is not significant, I don’t think it will have much effect.”
Mr. Xu Zhen said people’s consumption concepts have changed greatly and that consumption is downgrading under the overall economic downturn.
“People now have to reduce their spending after experiencing the COVID-19 lockdowns, the continuing economic downturn, and unemployment,” he said. “Behind the phenomenon of ‘lying flat’ is people’s lack of confidence in their future, society, and even the government. This is actually a crisis for the CCP regime.”
The “lying flat” phenomenon describes the movement among Chinese people, especially younger ones, of passive resistance by rejecting societal pressure to overwork or overachieve and doing only the minimum to survive.
