Stimulus package set to ignite fresh growth in China's consumer market

BEIJING -- From household appliance to auto manufacturing, a wide range of industries in China are gearing up for recovery. Policymakers have fleshed out details for a stimulus package to revitalize the super-large market.

In its latest bid to boost domestic demand, China's leadership has signaled its intention to expand consumer spending in a high-level meeting on Tuesday. The meeting underscored promoting the country's sweeping program of large-scale equipment upgrades and trade-ins of bulk durable consumer goods.

The renewed commitment came in the wake of a detailed plan announced last week to earmark approximately 300 billion yuan (about $42 billion) in ultra-long special treasury bonds to boost large-scale equipment renewals and replace old consumer goods with new ones.

To the surprise of some market analysts, the fund is tilted towards consumption and capital spending, as they had previously projected that the ultra-long special treasury bonds would traditionally flow into infrastructure, an established pillar of the national economy.

Above all, half of the fund was earmarked to support consumer goods trade-ins, which is roughly equivalent to 0.3 percent of the total retail sales of consumer goods registered last year. "This will give a vital boost for the consumer sentiment," said a UBS report.

The 300-billion-yuan bond incentive package marks a fresh round of the country's large-scale equipment upgrades and trade-ins of consumer goods program to spur domestic demand, following an action plan in March to initiate it -- nearly 15 years since the last such round of renewals.

Preliminary data painted a rosy picture of the program's tangible impacts on the real economy. During the first five months of this year, sales generated from home appliance replacements surged more than 80 percent from a year earlier on major e-commerce platforms, according to the National Development and Reform Commission.

Spending on the purchase of equipment and tools increased by 17.5 percent year-on-year during the same period, contributing more than 50 percent to the total investment growth in the country, the commission added.

Nevertheless, the positive outlook is tempered by the fact that China's consumer price growth remained moderate at 0.2 percent in June. The subdued inflation rate points to a warming consumer sentiment but also still-weak domestic demand.

Emphasizing the need to expand consumer demand with a focus on boosting consumption, Tuesday's meeting also hinted at a focus on economic policies that would improve people's livelihoods and expand channels to raise residential income.

Given the economic pressure coming from both domestic and global fronts, the meeting positioned consumption as a key leverage point to achieve the growth target, according to analysts. They take the meeting as a sign that China is taking a dual approach to target both enhancing income and increasing consumption to spur domestic demand.

The country's promise to bolster consumption is also echoed in a resolution released after the third plenary session of the 20th Communist Party of China Central Committee, which was held from July 15 to 18.

The much-anticipated tone-setting plenum has underlined efforts to improve the income distribution system, the employment-first policy, and the social security system in bid to improve the people's well-being.

Furthermore, it has urged efforts to refine long-term mechanisms for expanding consumption, reducing relevant restrictions, and actively promoting the debut economy.

Looking ahead, the current priority of the economic work is to align fiscal policies with the expansion of consumer loans by banks and promotional discounts by merchants, in a bid to quickly generate a synergistic push for consumption power, noted Wang Qing, chief economist at Golden Credit Rating, a credit rating agency in China.

On the manufacturing sector, Wang expects the policy incentive supporting equipment upgrades will substantially drive investment into the sector, generating a stronger internal impetus for China's economy through enhanced industrial activities.