China pledges government funds for equipment upgrades

China has pledged central government funds to encourage consumers and businesses to replace old equipment and goods, a pillar of its plan for economic growth of about 5 per cent this year.

Equipment renewal projects can receive support from the central government budget alongside tax breaks and targeted lending from banks, China’s State Council said on Wednesday (Mar 13).

The action plan aims to increase spending on equipment in sectors such as industry, agriculture, transport, education and healthcare by at least 25 per cent by 2027 compared with last year, China’s top economic planning agency said in a separate statement. The statements did not specify the amount of government funding for the programme, which was first mentioned by President Xi Jinping in February as a way of boosting demand for goods.

China’s 2024 growth target is seen as ambitious because the economy faces weak domestic demand, caused by an ongoing housing slump and low confidence among businesses and consumers. Those forces are also leading to deflation, which is increasing tensions over China’s exports.

If China spends around 800 billion yuan (S$152.2 billion) to provide a subsidy of 20 per cent for purchases of upgraded cars, major home appliances and equipment, the plan could induce 800 billion yuan of further spending this year, worth about 0.6 per cent of last year’s gross domestic product, Goldman Sachs Group economists estimated in a recent report.

The State Council, which coordinates China’s government ministries, said equipment upgrades would focus on industrial equipment, infrastructure such as residential lifts, transport equipment and consumer goods like cars and appliances.

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China’s state planning agency, the National Development and Reform Commission, said that it would work with relevant authorities to increase “fiscal, financial, taxation and other policy support” for the equipment plan, without giving an amount for the support. BLOOMBERG