Four months ago, China’s leaders announced a simple and proven plan to revive the economy: subsidies for consumers who want to replace old cars and home appliances.
The initial results are not promising.
As of June 25, only 113,000 cars were eligible for trade-in subsidies – a pittance in a country where more than two million cars are sold each month. And buyers of new appliances such as washing machines and refrigerators are being offered a discount of just 10 per cent, depending on which city they live in.
These incentives are not enough to bring customers to the stores.
“If there's no need for it, people won't go out of their way to find an old machine to participate in it,” said Dai Yu, manager of an appliance store in Jingdezhen, a city in south-central China's Jiangxi province.
The idea of providing fiscal stimulus to boost consumer spending is not new.
In 2009, United States, GermanyFrance, Spain and Austria offered so-called cash for clunkers programs to revive car sales. They paid households to remove gas-guzzling cars and replace them with new ones with better fuel economy. China itself gave consumers extensive tax cuts and subsidies to buy new cars and household appliances. The prices of many appliances were cut in half, especially for rural residents, and sales boomed.
The current strategy is hampered by strict eligibility restrictions and limited funding. As is often the case, China's central government has handed the appliance program almost entirely to provincial and local governments, many of which are struggling with heavy debt and reluctant to offer more generous subsidies. The central government, which has less debt, pays 60 percent of the cost of car subsidies.
So the effort has yet to solve one of China's biggest economic problems: low consumer spending. Factories have responded by attracting more customers abroad, but that hasn't helped much. provoked a reaction and trade restrictions by governments in Europe, the United States and developing countries.
The weakness of the cash-for-clunkers program is evident at an electric car factory and an air-conditioner compressor factory in Nanchang, the capital of Jiangxi.
The compressor factory's assembly lines are mazes of yellow robots staffed by teams of workers dressed in blue, running only one shift a day.
Several miles away, a loss-making electric car factory is making fewer than 30,000 cars a year, despite having the capacity to make 100,000.
Factories across China that make electric cars or home appliances are looking for export markets. For example, the electric car factory in Nanchang ships about 3,000 cars abroad each year, but this work is done in small batches to 30 countries, which is unprofitable.
Factories, often partly or fully owned by local or provincial governments, need exports to keep their workers busy. And despite weak domestic sales, they are reluctant to lay off workers.
A Decline in the housing market Millions of Chinese families are reluctant to make big purchases. Yet the state-run banking system, working at Beijing's behest, is lending hundreds of billions of dollars each year to build and expand more and more factories.
Chinese automakers nearly stopped selling electric cars in Europe four years ago, but they now capture a quarter of the European market this year. This success is accompanied by evidence that China has subsidized its electric vehicles. Electric car industryhas been inspired by European Union Drafting tariffs on these imports.
European and Chinese officials agreed last month to hold talks to avoid tariffs, but the two sides are still far apart. European officials say the electric vehicle supply chain in China is subsidized. Chinese officials have confirmed there are no subsidies, and that the growth of their industry reflects innovation and manufacturing efficiency.
The cash-for-clunkers scheme has high-level political backing to spur consumer spending. In March, Premier Li Qiang, China’s second-highest leader after President Xi Jinping, ordered that local and provincial governments should “largely promote the upgrading of appliances and the trading of old consumer goods.”
But debt-ridden local governments have not invested enough money in these programs. The national government has been reluctant to help. As a result, rebates offered to consumers have ranged from modest to very low.
Luo Yu, an office worker in Jingdezhen, walked out of Mr Dai's appliance store empty-handed on a recent evening, not happy with the 10 percent discount. “Why replace them if they're not broken?” she asked.
Subsidies for electric cars are rarely so generous. Most cars must be at least 13 years old to be eligible for replacement. Only about 10 million of the country's 250 million registered cars are eligible.
Used car owners get a subsidy of $1,380 — a tenth of the price or less for all but the cheapest cars — if they replace their old car with a new battery-electric car or plug-in hybrid car. If they replace an old, highly polluting car with a new car with a small gasoline engine that meets the latest emissions standards, the subsidy is $960.
In comparison, the United States has Subsidy of $4,500 per car The cash-for-clunkers program was so popular that General Motors, Ford Motor and other automakers increased factory production and recalled some idled workers.
China's automakers and banks are also offering discounts and loans to boost sales. But industry leaders acknowledge that many car buyers remain unenthusiastic.
“Consumers are still reluctant to sell their cars,” said Cui Dongshu, secretary general of the China Passenger Car Association. “It will be a gradual process.”
Xu Jingfeng, director of the Ministry of Commerce's consumer promotion department, said at a press conference last week that the pace of car trade-ins “shows a rapid upward trend.”
Sales of battery-electric cars and plug-in hybrid cars are rising in China. But this growth has been balanced by a decline in sales of gasoline-powered cars. Total car sales in China in May were little changed from the same month last year.
Equipment sales have been strong this spring, but not keeping up with factory production. Manufacturers with excess capacity are cutting prices to compete, part of a broader drop in many prices in China. They are finding customers abroad: The number of equipment exported in May rose 27 percent from a year earlier.
By providing cash for used pottery, the government encourages consumers to buy pottery from large manufacturing industries. But in cities like Jingdezhen, a center of pottery-making for more than 1,000 years, there are signs that Chinese consumers would spend more if the government gave them cash and let them choose how they wanted to spend it.
Thousands of young people, many recent graduates who face a very tough job market, flock to Jingdezhen's 31-acre open-air pottery market. They spend a lot of time but very little money.
Wang Yajun has long sold hand-painted figurines of Chinese gods at her stall. She now also paints and sells low-priced refrigerator magnets.
“People find it difficult to accept higher-priced products,” he said. “Cheaper products may perform better.”
Li You Contributed to research.
