China’s Trade-In Program Sales Drop as Stimulus Effect Fades

China’s nationwide consumer goods trade-in program generated 1.1 trillion yuan ($160 billion) in sales in the first half of 2026, according to data released by the Ministry of Commerce on July 22 — a sharp 31% decline from the 1.6 trillion yuan recorded in the same period last year. The drop signals that the government’s three-year-old stimulus campaign is losing momentum as lower subsidy budgets, previously released demand, and broader consumer caution take their toll.

Context

Launched in 2024 as a key pillar of Beijing’s strategy to revive domestic consumption amid a prolonged property downturn, the trade-in program (“Yi Jiu Huan Xin”) allows consumers to receive subsidies when exchanging old cars, home appliances, and other goods for new ones. Funded through ultra-long-term special treasury bonds, the program initially delivered a powerful boost to consumption, driving cumulative sales of 4.16 trillion yuan by March 2026.

However, the latest figures come at a precarious moment for the Chinese economy. Total retail sales of consumer goods fell 0.6% year-on-year in the second quarter of 2026, marking the first contraction since the post-pandemic reopening in late 2022, as reported by TrendForce.

Key Developments

According to Caixin Global, the program supported 150 million purchases in H1 2026, including 3.707 million vehicles and 63.266 million home appliances traded in. Digital and smart product purchases reached 79.098 million units.

The decline reflects deliberate policy tightening. The government reduced the program’s budget to 250 billion yuan in 2026, down from 300 billion yuan in 2025, and narrowed eligible appliance categories from 12 to just six — refrigerators, washing machines, televisions, air conditioners, computers, and water heaters — all subsidized at a uniform 15% rate. In 2025, subsidies had ranged from 15% to 20%.

Auto subsidies were also restructured. Instead of fixed amounts — up to 20,000 yuan for new-energy vehicles (NEVs) and 15,000 yuan for combustion-engine cars — subsidies were linked to vehicle prices. The China Passenger Car Association reported that the revision cut the average subsidy for scrappage and replacement purchases by about 20% and reduced the standard replacement subsidy by roughly 30% from 2025 levels.

China Daily reported on the 2026 subsidy scheme, noting the narrowed scope. The government did attempt to offset the reductions with a mid-year injection of 62.5 billion yuan ($9.2 billion) in June 2026, as Caixin reported, but the fresh funding has not reversed the broader trend.

Sectoral Impact

The impact has been uneven across sectors. Home appliance dealers reported first-half sales down 30% to 40%, citing reduced subsidy scope and previously released demand. Home appliance and audiovisual equipment sales plunged 15.6% in May 2026, while auto sales tumbled 16.1%, according to National Bureau of Statistics data.

Compact NEVs priced below 80,000 yuan were hit particularly hard, with sales falling 37.7% year-on-year to 413,000 units in H1 2026. Domestic smartphone shipments fell 4.2% year-on-year to about 134 million units, with actual sales down roughly 9-10%, and the decline widening to about 15% in the second quarter.

However, not all categories suffered. Digital and smart product purchases under the program rose 13.4% year-on-year in H1 2026, with smart glasses sales surging 30.6% in June alone. The NEV retail penetration rate hit a record 62.4% in the second quarter, and the share of trade-in subsidies used for NEVs reached 65.4% by June, according to Xinhua.

Analysis

The trade-in program’s diminishing returns highlight a classic policy dilemma: short-term consumption subsidies tend to pull forward demand rather than create genuinely new consumption. As Yuan Haixia, director of the research institute at China Chengxin International Credit Rating, told Yicai Global, “The effects of the program have started to weaken due to some consumer demand already being brought forward and the fact that supporting policies remain incomplete.”

Luo Zhiheng, chief economist of Yuekai Securities, warned that canceling the policy could cause a “sharp drop in retail sales growth,” while acknowledging that the stimulus “is more about accelerating the timing of purchases rather than expanding demand.”

Analysts at TrendForce identified deeper structural issues: “Exploring the core drivers of the consumption decline, it mainly stems from residents’ weakening expectations for future income and the lingering shadow of deflation.” HSBC similarly concluded that previous subsidy programs “mostly just front-loaded demand, failing to successfully stimulate real and sustained new consumption momentum.”

Broader Economic Headwinds

The program’s struggles cannot be separated from China’s broader economic challenges. The prolonged property market downturn has suppressed related demand for home appliances and building materials while eroding household wealth. With a record 12.7 million college graduates entering the labor market in 2026, job market uncertainties have prompted consumers to increase precautionary savings, further dampening consumption.

Wang Qing, chief macro analyst with Golden Credit Rating International, had called for expanding the program to 500 billion yuan in 2026, arguing that “China needs to step up efforts to boost domestic demand.” Instead, the government reduced the budget, creating what analysts describe as a “hot production, cold consumption” dynamic where industrial production and exports remain resilient but domestic consumer demand is weak.

What’s Next

Industry participants are increasingly focused on whether policymakers will adjust the program for 2027 — potentially expanding it again or redesigning it entirely. Experts suggest the government may need to pivot from goods subsidies to services sector support, direct cash transfers, or income tax cuts to address the root causes of weak consumption.

The Central Economic Work Conference has already flagged consumption-boosting campaigns as a top priority, and some local governments — including Jiangsu and Shanghai — have begun experimenting with greater flexibility in designing subsidy programs, such as including embodied intelligent robots in eligible categories.

However, the fundamental question remains whether any subsidy program can overcome the structural constraints on Chinese consumption: income distribution challenges, social safety net gaps, and household debt levels that trade-in subsidies alone cannot address. As the stimulus effect continues to fade, Beijing’s next policy move will be closely watched for signs of a more fundamental shift in approach.