CITIC SEC: 2025 "Two New" Officially Launched, Optimistic about the Release of Demand in the Auto Sector, Suggests Focus on Home Appliance Industry with High Proportion of Domestic Sales and Component Companies.

On January 8, the National Development and Reform Commission and the Ministry of Finance issued a "Notice on Implementing Large-Scale Equipment Renewal and Trade-in Policies for Consumer Goods in 2025". Subsequent attention is advised to the announcement of the scale of funds and detailed implementation rules for various specific sectors during the National People's Congress and the Chinese People's Political Consultative Conference. In terms of specific sectors, the scope of scrappage subsidies for passenger and commercial vehicles has been expanded to include the National IV standard, exceeding market expectations. It is strongly believed that under the stimulus of the policy, the demand for the automotive sector in 2025 will be released, and top automotive sub-sectors are recommended. It is expected that the home appliance industry will continue to benefit from this policy, and attention is recommended for enterprises with a high proportion of domestic sales and those in the components sector. Key points from CITIC SEC: The "Two New" policy for 2025 has been officially launched, with significantly increased support compared to 2024. On January 8, the National Development and Reform Commission and the Ministry of Finance issued the "Notice on Strengthening and Expanding Large-Scale Equipment Renewal and Trade-in Policies for Consumer Goods in 2025". On the same day, the National Development and Reform Commission, together with five other departments, attended the State Council's routine policy briefing to explain the relevant policies. Overall, the 2025 "Two New" policy has more funds, greater strength, wider scope, and better mechanisms than 2024. With reference to the efficient implementation of the 2024 trade-in subsidy policy, the market's sales have been significantly boosted. It is expected that the 2025 policy will continue to be effective, stimulate consumption, boost domestic demand, and play a role in driving economic development. Specifically: Funding Amount: Compared to 2024, it will be significantly increased, with the specific amount to be announced during the "Two Sessions". The first batch of funds has already been allocated. Firstly, the meeting proposed that "the total amount of funds to support the 'Two New' this year is significantly larger than last year". However, due to legal procedures, the specific amount will be announced during this year's "Two Sessions". It is predicted that the budget for the trade-in subsidy will increase from around 150 billion yuan to around 300 billion yuan. Secondly, the central government has already allocated 81 billion yuan as a trade-in subsidy, to ensure policy continuity before the "Two Sessions". Finally, the distribution between central and local governments remains at a 9:1 ratio unchanged, but in 2025, funds will be moderately inclined towards regions that have shown good results in 2024. Subsidy Strength: Compared to 2024, the subsidy intensity for the 2025 policy has increased for certain items: new energy buses and power batteries (from 60,000 yuan to 80,000 yuan), vehicle replacement subsidies (new energy vehicles receive 15,000 yuan, fuel vehicles receive 13,000 yuan, higher than the national average), cotton pickers (from 60,000 yuan to 80,000 yuan), home furnishings and electric bicycles (the document explicitly states "increased efforts," with the amount to be determined by local governments). However, the subsidy standards for products like automobile scrappage and home appliances remain consistent with last year. Supported Categories: Compared to 2024, the policy scope for 2025 has expanded for certain categories: old operating trucks and passenger vehicles (emissions standards expanded to National IV and below), consumer electronics (local subsidies upgraded to national standards, standardization), home appliances (8 categories expanded to 12 categories, air conditioners can be subsidized for 3 units), key area equipment renewal (added electronic information/safety production/facility agriculture), and the upper limit of agricultural machinery types (increased from 6 to 12). Policy Mechanism: The document explicitly states that the 2025 trade-in policy should reduce barriers to entry, simplify subsidy procedures, treat enterprises equally, and "explore the linkage between subsidy policies and financial support, fully leverage the leverage effect of policy funds". It is expected that the number of offline dealers and the participation level of online platforms in the policy in 2025 will increase, and various trade-in loan products and discounts will become more widespread. Recommendations include: 1) the release of detailed implementation rules for the five sectors of automobiles, home appliances, kitchen and bathroom furnishings, electric bicycles, and digital products such as smartphones, to clarify subsidy standards; 2) the announcement of the total annual fund for the "Two New" in the March "Two Sessions"; 3) exploring new subsidy categories tailored to local conditions this year; 4) tracking high-frequency data after the policy succession to observe the stimulating effects. Automobiles: Subsidy scope expanded, exceeding market expectations. Strongly optimistic about the release of demand for the automotive sector in 2025 under the stimulus of the policy. The scope of scrappage subsidies for passenger and commercial vehicles has been expanded to include the National IV standard, exceeding market expectations. The briefing stated that fuel vehicles that meet the National IV emission standard (i.e., fuel vehicles registered before June 30, 2012, gasoline vehicles, and before June 30, 2014, diesel and other fuel vehicles) would be eligible for the scrappage subsidy. According to a calculation by the China Automobile Dealers Association, the current inventory of National IV passenger vehicles in China exceeds 70 million units, a significant increase from the previous 16 million units for National III and earlier standards; the current inventory of National IV heavy trucks is around 800,000 units, much higher than the inventory of National III heavy trucks. CITIC SEC believes that the relaxation of trade-in standards for 2025 will significantly exceed market expectations. Strongly optimistic about the release of demand for the automotive sector in 2025 under the stimulus of the policy. The briefing introduced that in 2024, over 2.9 million vehicles were scrapped and upgraded, driving sales of over 920 billion yuan. According to calculations, the government spent about 89 billion yuan on the "trade-in" policy in 2024, boosting vehicle sales by about 1.67 million units, with a fiscal leverage ratio of about 2.9 times. It is strongly believed that under the stimulus of the policy, the demand for the automotive sector in 2025 will be released throughout the year, with commercial vehicles expected to benefit particularly during the traditional peak season in Q1 2025. Recommended top automotive sub-sectors: 1) Commercial vehicles; 2) Passenger vehicles; 3) Two-wheelers. Home Appliances: Policy strategies exceed expectations, focus on enterprises with high domestic sales and component manufacturers. CITIC SEC believes that the home appliance industry will continue to benefit from this policy. First, the subsidy for air conditioners has been increased, with the subsidy per unit increased from 1 to 3 units, showing significant elasticity in air conditioning enterprises, and central air conditioning companies may also benefit. Second, the scope of subsidies has expanded to include 12 categories, adding four categories of kitchen small appliances such as microwave ovens, water purifiers, dishwashers, and rice cookers, benefiting kitchen appliance and small appliance manufacturers. Third, the total subsidy amount may be significant. According to CITIC SEC calculations, the total subsidy for home appliances in 2024 was 45.6 billion yuan, far exceeding the market's expectations when the policy was introduced in July 2024 with a subsidy of 20 billion yuan for home appliances.Expected subsidy of billions. The subsidies for the household appliance industry are expected to continue throughout the year in 25 years, with reference to the subsidy amount in 24 years and the subsidy policy in 25 years, the subsidy amount in 25 years is estimated to be around billions of RMB.Recommend focusing on companies with a high proportion of domestic sales and those in the components industry. Risk factors: Increased risk of international trade friction; domestic macroeconomic performance below expectations; delay in the implementation and effectiveness of domestic policies; industry development falling short of expectations.