China’s Appliance and iPhone Boom: How Halting Subsidies Could Impact Global Markets and Investors
China Boosts Consumer Spending Amid Economic Challenges
TIANJIN, China — As Zhan Demi explored the selection of Apple iPhones in a Tianjin electronics store, she cited multiple reasons for her need to upgrade. The storage on her current phone was rapidly diminishing due to countless photos and videos of her toddler. Additionally, her child’s teacher had required her to download various apps, further straining her device’s capabilities. However, it was a government trade-in program designed to invigorate stagnant consumer spending that ultimately prompted her visit.
Faced with a trade war with the United States, the Chinese government has invested $42 billion this year into this consumer trade-in initiative, doubling last year’s allocation. This program aims to stimulate much-needed spending at a critical time for the economy by subsidizing discounts on a wide range of goods, from washing machines to electric vehicles.
The program’s effectiveness has led several municipalities to either suspend or limit it recently to prevent rapid depletion of funds. In May, retail sales experienced a surprising 6.4% growth, surpassing economists’ predictions, largely driven by strong demand for smartphones and household appliances.
"We want to shear wool from the sheep," Zhan stated, referencing a popular Chinese idiom about seizing opportunities. She had previously utilized the program to purchase energy-efficient appliances at discounts of up to 20%. "If we can upgrade everything at once while there are good deals, we will do it," she added.
Persistent concerns regarding consumer spending have plagued China’s economy. Chinese consumers tend to save more and spend less compared to their counterparts in developed nations, even during periods of rapid economic growth. As growth slows, with job losses increasing and the vital property sector continuing to decline, boosting consumer spending has become essential for economic sustainability.
China’s typical strategies for economic stimulation may not yield results in the current environment. It is unable to invest as freely in infrastructure as it has in the past due to local governments struggling under significant debt from prior construction projects. Additionally, ongoing trade tensions with the U.S. and global apprehensions about the influx of inexpensive Chinese goods restrict the country’s ability to increase exports.
Despite tapping into the trade-in program, Zhan noted that she has also been cutting back on expenses. After her favorite coffee shop raised prices from $1.40 to $2 per cup, she opted to brew coffee at home. "It’s natural to make such choices when the economy isn’t doing well," she explained.
Many individuals face job losses, reduced work hours, or salary cuts, prompting consumers to make more thoughtful spending decisions. “Consequently, people tend to compare and evaluate their options more carefully,” Zhan remarked.
While the ruling Communist Party has long acknowledged the importance of stimulating consumption, recent comments from top officials have become increasingly urgent. Premier Li Qiang recently affirmed that the government is “intensifying efforts” to boost domestic demand through special initiatives, aiming to transform China into a major consumption powerhouse alongside its manufacturing status.
The current trade-in program, initiated late last year, mirrors the U.S. “Cash for Clunkers” scheme. Initially targeting eight categories of home appliances and vehicles, it offers discounts ranging from 15% to 20%, with greater savings for more energy-efficient products. China has funded this initiative through special Treasury bonds, doubling this year’s budget and expanding eligibility to smartphones, tablets, and smartwatches.
Last month, the Chongqing municipal government, among others, suspended the subsidies. Officials clarified that this was a temporary pause in anticipation of a future round of subsidies.
While the trade-in program has encountered success, economists warn that its impact may be short-lived. Nomura, a Japanese investment bank, projects a 0.4 percentage point decline in retail sales for the latter half of 2025 compared to the previous year, with a nearly 1 percentage point drop anticipated in early 2026.
In response, the government is exploring alternative approaches. This year, families with children under three years old will receive annual payments of $500. According to Zichun Huang, an economist with Capital Economics, these cash handouts represent a “shift in mindset” paving the way for more consumption-supporting measures.
China’s high savings rates also stem from a limited social safety net. While citizens have access to medical and pension insurance, benefits remain insufficient, resulting in significant out-of-pocket expenses. Moreover, many individuals—particularly among the 200 million gig workers—lack unemployment or workplace injury insurance.
Zhang Dylan, a salesperson for automobile manufacturer BYD, shared that he has observed a modest increase in car sales due to the trade-in program. However, he noted that demand remains far lower than two or three years ago, when long waiting lists were common.
Reflecting on the current financial climate, he stated, "People are being tightfisted because it is too difficult to make money."
In a nearby mall, Wang Mingke, a Xiaomi store salesperson, reported increased smartphone sales linked to the trade-in initiative. The store now sells over 30 smartphones monthly, up from 20 prior to the subsidies. A few months ago, during the program’s initial phases, sales peaked at 50 units in a single month.
Wang remarked that the subsidy has encouraged hesitant consumers to make purchases. “As your income becomes slightly lower, you may choose to hold off on discretionary spending,” he said, highlighting the broader economic downturn concerns.
This article originally appeared in The New York Times.
Special Analysis by Omanet | Navigate Oman’s Market
The ongoing trade-in program in China, aimed at stimulating consumer spending, illustrates the profound impact of government intervention in economic recovery. For businesses in Oman, this trend may signal opportunities to explore similar initiatives that could boost local consumption and enhance sales in the face of sluggish demand.
However, smart investors and entrepreneurs should remain vigilant of potential risks, such as the fleeting nature of these subsidies and the inherent volatility in consumer behavior. As economic challenges persist, strategically adapting to changing consumer preferences will be crucial for sustainable growth.
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