(Yicai) Dec. 5 -- China’s trade-in subsidy scheme for consumer goods, which is due to expire this year, should be extended into 2026 with a bigger budget of CNY500 billion (USD70.7 billion) and a broader scope in order to spur consumer demand, support industrial upgrading and stimulate the economy, experts told Yicai in a series of recent interviews.

China needs to step up efforts to boost domestic demand and the trade-in program, also known as the national fiscal subsidy, should be expanded next year, said Wang Qing, chief macro analyst with Golden Credit Rating International. Next year’s trade-in subsidies are likely to jump to CNY500 billion (USD70.7 billion) from CNY300 billion this year.

Given the ongoing need to boost consumption, China may hike the quota for ultra-long-term special government bonds to support spending next year, said Yuan Haixia, director of the research institute at China Chengxin International Credit Rating. 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.

Support should be shifted to services from goods, Yuan said. Cash subsidies and digital currency vouchers should be increased and subsidies for livelihood areas such as childcare and employment can be added.

To spur consumption, China issued CNY150 billion (USD21.2 billion) of ultra-long-term special treasury bonds last year to fund the trade-in program. Due to the positive effect of the scheme that year, the government raised the budget to CNY300 billion this year which was allocated quarterly to ensure the even use of the funds.

The trade-in scheme not only provides direct benefits to consumers, it also lifts sales of products covered by the subsidy, boosting manufacturers’ performance and supporting industrial transformation, according to on-site research conducted by Yicai.

The trade-in program helped drive sales of more than CNY2.5 trillion (USD353.6 billion) in the 11 months ended Nov. 30, benefiting over 360 million people, according to Ministry of Commerce data.

The continued rollout of the trade-in policy for consumer goods since the second half of last year has clearly boosted the consumption of related goods, Luo Zhiheng, chief economist of Yuekai Securities, told Yicai. But diminishing policy effects and the high base from the same period last year, have caused growth in consumption to slow down in the second half. This short-term stimulus to durable consumer goods is more about accelerating the timing of purchases rather than expanding demand, so prices may remain low.

The trade-in subsidy program should continue next year, but the implementation and areas supported need to be optimized. For example, the subsidies should shift from goods to services. Canceling the policy next year could cause a sharp drop in retail sales growth, he added.

Editor: Kim Taylor