Why China is paying people to upgrade phones, cars, and appliances

People wearing virtual reality (VR) goggles experience "Tang Palace Night Banquet," an immersive virtual exhibition recreating life during the Tang Dynasty, at the Hangzhou International Expo Center in Hangzhou, eastern China's Zhejiang province on June 3, 2025. (Photo by AFP)

Confronting an economic slowdown along with a further decline in consumer consumption, China doubled back in 2025 on its efforts at stimulus with a $42 billion trade-in plan to encourage citizens to swap old for new, more efficient products. The scheme — ranging from air-conditioners and cellphones to electric vehicles — already triggered a large rise in retail sales but is fuelling concern over its long-term implications, the New York Times said.

Consumers like Zhan Demi, a mother buying iPhones in Tianjin, have been quick to take advantage of the discounts. The phone memory filled with photos and videos of toddlers and school applications needing additional space, the trade-in discounts scheme were the tipping point for her. "If we can get everything upgraded all at once when there's a good promotion, we'll do it," she said.

The impact has been immediate: May retail sales rose 6.4%, surpassing expectations among economists, and appliance and smart-phone sales benefited from particularly strong demand. The trade-in programme allows for up to 20% discounts, particularly on more energy-efficient models, and has been so popular that several municipalities — Chongqing included — have put their participation on hold to avoid exhausting funds too soon.

Beijing's strategy for stimulus is a dramatic change of direction. Rather than relying on traditional infrastructure spending, which has left local governments in deep debt, China is betting on domestic consumption to power its recovery. Premier Li Qiang expressly reversed the emphasis last week, vowing to position China "a megasized consumption powerhouse on top of being a manufacturing powerhouse.".

China's paramount leader, Xi Jinping, also reflected these intentions, urging policymakers to "fully unleash" consumer demand to counter the effects of the still-simmering trade war with America. The trade-in program, which started late in 2024 and was patterned after America's "cash for clunkers" program, has broadened to include a wider array of electronics and home appliances.

Despite the optimistic first-time performance, however, analysts are sceptical as to whether the stimulus to spending will be maintained. Investment bank Nomura predicted retail sales potentially declining by 0.4 percentage points during the second half of 2025 compared to the previous year — and by nearly one percentage point early in 2026 — as the programme's influence passes.

Even with the subsidies, consumers remain cautious. Increased prices, flat wages, and job insecurity are causing many to pinch pennies. "Rather than being short of money, people do tend to compare and make more considered choices," Zhan said, having begun home-brewing coffee since her favourite coffee shop jacked up its prices.

decades of Chinese economic expansion were fuelled by government-directed expenditure on infrastructure and a hot housing market. But that formula is coming apart. Local governments are at the brink of insolvency, housing prices have collapsed, and abysmal youth unemployment persists. China's export-driven manufacturing engine is also being strangled, with global concerns about a record level of cheap Chinese imports.

Ground sales personnel report only a slight increase in demand. Dylan Zhang of electric car manufacturer BYD reported slightly higher sales, but nothing like the boom a few years back. He and his wife, who purchased a house in 2019, have watched its value decline by almost 50%, making them less willing to make large purchases.

To further increase consumer spending at home, China will provide quarterly cash payments of $500 for every child under three years of age, Bloomberg reported. Economists say the direct transfers are a "change in mindset" for China's government, which has traditionally emphasized saving and production over consumption.

But issues linger. China's social safety net is still bare, especially for its estimated 200 million gig workers, many of whom lack coverage for unemployment or injury insurance. Until such gaps are covered, caution analysts, household savings rates will not decline — and stimulus efforts will continue to yield short-term benefits only.