China State Council Action Plan on Promoting Large-Scale Equipment Renewal and Consumer Goods Trade-In ('Two New', Guo Fa [2024] No. 7)

Mechanism

The Action Plan is a State Council umbrella document operationalised through parallel ministry-level implementing rules:

• NDRC coordinates equipment-renewal demand-aggregation across SOEs and

ministries (MIIT for industry, MOA for agriculture, MOT for transport, MOE for education, NHC for healthcare, MOHURD for construction).

• MOF issues the ultra-long-term special treasury bond tranches that

fund central-government subsidy top-ups; provincial finance bureaus match-fund the consumer trade-in side.

• MOFCOM runs the consumer-goods trade-in scheme in conjunction with

provincial commerce departments and platform partners (Alibaba, JD, Meituan for appliance and digital-product channels; CADA member dealerships for autos).

• SAMR and MIIT drive the standards-uplift action line (energy-

efficiency thresholds, emissions limits, product-recall mechanisms) so that scrappage incentives select for higher-efficiency replacement units.

• NEA, MEE, MOST, CBIRC participate as line ministries on the

energy-efficiency, emissions, R&D, and consumer-credit dimensions.

Subsidy mechanics:

1. Vehicle scrappage: central + local subsidies of CNY 10,000–20,000 per scrapped ICE vehicle replaced with a new EV; CNY 7,000–13,000 for replacement with a more efficient ICE model. >6.8 million auto trade-ins reported in 2024. 2. Home-appliance trade-in: 15–20% subsidy on the purchase price of eight (later twelve) appliance categories meeting Grade-1/Grade-2 energy- efficiency standards; tail subsidies for old-unit recycling. >37 million consumers participated in 2024 per State Council reporting. 3. Equipment renewal: SOE and key-industry capex matching, fast-tracked project-loan approvals via PBoC re-lending facility (CNY 500bn capped), accelerated depreciation tax treatment for qualifying equipment, and centrally-coordinated demand pooling for sectors with low replacement rates (agricultural machinery, healthcare imaging, school IT). 4. Recycling and circularity: mandatory take-back schemes scaled up for end-of-life vehicles and appliances; targets to double scrap-vehicle recycling volumes and lift scrap-steel utilisation to 345 Mt/yr by 2027.

Downstream implications

• Steel and base metals: the equipment-renewal pillar is the most

directly metals-intensive demand pull since the 2008-09 stimulus — scrap-steel utilisation target of 345 Mt/yr (vs ~260 Mt/yr in 2023) plus industrial-equipment capex feeds copper, aluminium, and special-steel demand.

• EV battery supply chain: the auto-trade-in subsidy structurally

favours BEV/PHEV replacement, sustaining Chinese cell capacity utilisation (CATL, BYD, CALB) and lithium/cobalt/nickel demand at a moment when Western EV sales growth is decelerating. Export-route absorption of the resulting capacity surplus is what Brussels and Washington frame as overcapacity.

• External trade-policy linkage: the EU's October 2024 CVD on Chinese

EVs (filed: 2024-10-29-eu-china-ev-countervailing-duties) and the May 2024 US Section 301 tariff hikes on EVs/batteries/solar (2024-05-14-us-section-301-tariff-hikes-china) explicitly cite Chinese state-subsidised manufacturing capacity build-up as the predicate. The Two New plan is on the demand-pull side of the same political economy.

• Monetary plumbing: ultra-long-term special treasury bonds (50-year

maturities) are a quasi-fiscal innovation that channels household savings into central-government industrial-policy spending without breaching the 3% deficit cap; first issuance May 2024, second tranche July 2024, expanded in 2025 to CNY 300bn earmarked specifically for "Two New".

• Severity 5 rationale: quantitative envelope (CNY 150bn 2024 → 300bn

2025; >CNY 1.3 trillion in stimulated transactions year-1), explicit cross-sector scope, durable multi-year horizon (2027 quantitative targets), and direct first-order effects on global commodity demand and on third-country trade-policy responses (EU CVD, US 301).

Open questions

• Provincial layer sizing: how much provincial co-funding stacks on

top of the central CNY 300bn 2025 envelope; key for true fiscal-impulse estimation.

• Substitution vs net-new demand: to what extent is the 2024 CNY 1.3tn

in trade-in transactions pulled forward from 2025-26 baseline demand vs. genuinely additive — leading indicator is 2026H1 auto and appliance retail-sales prints.

• Standards-uplift bite: whether SAMR/MIIT actually enforce the

Grade-1/Grade-2 efficiency floors at the point of scrappage, or whether the subsidy becomes a generic price-discount lever.

• Continuation post-2027: whether the Action Plan is folded into the

15th Five-Year Plan (2026-2030) as a permanent fixture or sunset on schedule once equipment-investment targets are met.

• Backdoor support to property: the home-furnishings sub-line (kitchens,

bathrooms, smart home) effectively subsidises home-improvement spend — watch whether this is widened into a quasi real-estate stimulus channel.