Zhongjin: The recent effect of the old-for-new exchange is good, and the subsequent multiplier may weaken.

CICC released a research report stating that, according to its estimates, the progress of trading in old products for new ones has been gradually accelerating since the beginning of the year. The scale of fiscal subsidies for 4 categories of goods in the first quarter was approximately 64.5 billion yuan, of which around 39.1 billion yuan was in March. In terms of policy effectiveness, it is estimated that the current multiplier effect of the March subsidy policy on the consumption of the 4 categories of goods may be above 2.8. However, historical experience shows that durable goods subsidy policies have an overshoot effect, with the long-term cumulative multiplier dynamically weakening and causing a certain squeeze on other consumption during the same period. Against the backdrop of significantly rising uncertainties in the trade situation, it is important to focus more on "investing in people" and increase support for the livelihood areas (such as childbirth, childcare, housing, old-age care, etc.). As of mid-April, the progress of trading in old products for new ones in the 4 categories of consumer goods disclosed by the Ministry of Commerce is as follows: (1) In terms of automobiles, as of midnight on April 10th, there have been 2.32 million applications for subsidies for trading in old cars for new ones, with 0.747 million applications for scrapping and renewing subsidies and 1.485 million applications for replacement subsidies. (2) For household appliances, as of April 10th, consumers have purchased a total of 37.59 million old-for-new household appliances. (3) For digital products, as of April 6th, consumers have applied for subsidies to purchase new smartphones, tablets, and smartwatches (bands) totaling 64.866 million units. (4) In terms of electric bicycles, as of April 11th, there have been 3.526 million old-for-new transactions, with 3.526 million units sold and exchanged for old and new bicycles. Based on the progress data, estimates show that the overall progress of trading in old products for new ones has been accelerating since the beginning of the year. Due to factors such as the Spring Festival, the beginning of the year was a weak season for durable goods consumption, and the progress of trading in old cars and appliances for new ones was slow. However, starting in March, as policies were successively implemented and funds were disbursed, the progress of trading in old cars and appliances for new ones accelerated. China International Capital Corporation (CICC) estimated the daily progress of trading in old products for new ones in the 4 categories of consumer goods from March 25th to April 10th as follows: - The daily average number of applications for trading in old cars for new ones was 46,000 vehicles, equivalent to 78% of the daily average from November to December 2024. - The daily average number of purchases of household appliances traded in for new ones was 564,000 units, equivalent to 89% of the daily average from November to December 2024. - The daily average number of purchases of electric bicycles traded in for new ones was 196,000 units, which is 6.2 times the daily average from late December 2024. - Since the introduction of subsidies for new purchases of smartphones and other digital products in January 2025, there has been a peak in the number of applications for subsidies, followed by a gradual decline, stabilizing at a daily average of 600,000 to 700,000 units per day. Considering that November to December is the peak season for the sales of automobiles and appliances, and there may have been a rush in consumption before the policy exits at the end of last year, the current daily progress reaching approximately 80-90% of the end of last year is quite impressive. From the perspective of retail sales of consumer goods, trading in old products for new ones has effectively boosted consumption of relevant goods. In March, the total retail sales of consumer goods increased by 5.9% year-on-year, accelerating by 1.9 percentage points compared to January-February, making it the highest monthly growth rate since 2024. Among the retail sales of above-quota units, the growth rate of retail sales of goods in the trading in old products for new ones category significantly improved by 9.7 percentage points to 12.5% in March, with rapid growth in the retail sales of household appliances (35.1%), furniture (29.5%), communication equipment (28.6%), and cultural and office supplies (21.5%), and vehicles (5.5%) also achieved a 9.9 percentage point improvement in growth. According to the data disclosed by the Ministry of Commerce, CICC estimated the subsidy amount per unit and the total fiscal subsidy amount for the first quarter for the 4 categories of consumer goods. (1) Trading in old cars for new ones: The ratio of scrapping and renewing to replacing is approximately 1:2. On average, each scrapped car is subsidized by 18,000 yuan, and each replacement car is subsidized by an average of 11,000 yuan. The weighted average subsidy for trading in old cars for new ones is approximately 13,300 yuan per vehicle. (2) Trading in old appliances for new ones: The average selling price per unit is 3,494 yuan, and with an average subsidy rate of 18.8%, the average subsidy per unit is 659 yuan. (3) Subsidies for new purchases of mobile phones: Models under 3,000 yuan are the main sellers, with a 15% subsidy rate; while models between 3,000 and 6,000 yuan mostly have a subsidy cap of 500 yuan, and models over 6,000 yuan do not receive subsidies. The weighted average subsidy per mobile phone may be around 280 yuan. (4) Trading in old electric bicycles for new ones: As of April 11th, over 3.5 million consumers have applied for subsidies for trading in old electric bicycles for new ones, with a total subsidy application amount of 2.41 billion yuan, averaging 683 yuan per vehicle. CICC's calculations show that the total fiscal subsidy scale for the first quarter for the 4 categories of goods is approximately 64.5 billion yuan. From January to March, the fiscal subsidy amounts for trading in old products for new ones for each of the 4 categories of goods were approximately 8.7 billion yuan, 16.6 billion yuan, and 39.1 billion yuan, with the progress of trading in old products for new ones in March significantly increasing the monthly fiscal subsidy. If this progress is used to project forward, with the initial budget of 300 billion yuan allocated for the year, CICC estimates that it may be fully utilized by the beginning of the fourth quarter. If the trading in old products for new policy continues throughout the year, there is still room for further reinforcement. In terms of policy effectiveness, CICC's estimates show that the fiscal multiplier effect of the trading in old products for new policy in March may be above 2.8. The policy impact is estimated using the Difference-in-Differences (DID) method. Using August 2024 as the base period to study the effects of the policy before it was fully implemented, the fiscal multiplier effect during the current period is estimated to be above 2.8.The sub-items, the sub-item growth rate of non-trade-in items increased by -3.6% and 3.2% respectively, in March 2025, the growth rates of the two increased by 12.5% and 4.7% respectively. The growth of the trade-in sub-item compared to the non-trade-in sub-item increased by 14.5 percentage points, corresponding to an additional push of 86.3 billion yuan in social retail sales. During the same period, fiscal subsidies increased by 30.7 billion yuan, which can be calculated to yield a fiscal multiplier of 2.81. Since our estimation is based on the retail sales of above-quota units, there may be some underestimation of the actual fiscal multiplier. The multiplier for the trade-in policy in 2024 was 2.87, and with the accelerated growth of social retail in March 2025, the actual fiscal multiplier may not be lower than the 2024 level.But historical experience shows that the policy of exchanging old for new has an overdraw effect, and its multiplier will dynamically weaken. In order to continue boosting consumption, it is necessary to increase support for people's livelihoods (such as childbirth, child-rearing, housing, old-age care, etc.). Horizontally, the policy of exchanging old for new for consumer goods has a significant stimulating effect on current consumption, but it may exert certain pressure on other consumption (especially optional consumption without policy support). Vertically, historical experience shows that the fiscal multiplier of durable goods subsidy policies will dynamically weaken, and CICC predicts that the multiplier in the fourth quarter of 2025 may fall to between 1-1.5. With increasing external trade pressure, it is even more necessary to support consumption growth through sustainable measures and comprehensively expand domestic demand. CICC believes that policies that support people's livelihoods such as childcare subsidies, strengthening social security, and housing guarantees are not only beneficial for boosting current demand but also for enhancing growth potential, and may become an important focus of future consumer promotion policies. Chart: Assumptions for quarterly multipliers Source: Ministry of Commerce, Wind, CICC Research Department