Some provinces running out of money to cover subsidies for consumer purchases
PUBLISHED : 17 Jun 2025 at 16:39
China is testing the limits of what its consumer stimulus can accomplish by subsidising purchases of select goods, fuelling a shopping spree that has boosted retail sales growth but threatens to overwhelm authorities, even in the country’s richest regions.
Consumer participation in the home goods trade-in programme has resulted in some provinces quickly running out of funds that the national government has so far distributed to pay for the subsidies.
Henan and Chongqing have been forced to suspend the granting of subsidies or receiving applications for the handouts, according to recent local government announcements and Chinese media reports, while Jiangsu and Guangdong imposed restrictions on the programme such as managing a daily quota.
The disruptions are putting Beijing at a crossroads as it looks for a longer-term fix to a crisis of confidence among households.
Officials have made expanding consumption their top economic priority this year in anticipation of US tariffs. It has doubled the amount of ultra-long special sovereign bonds to finance subsidies for a cash-for-clunkers car trade-in campaign to 300 billion yuan ($42 billion). Just over half of the total has been distributed or is in the process of being disbursed to local governments.
“The rapid use of the subsidies suggests the programme is effective in expanding sales of the products it targets,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered.
“However, considering limitations to the country’s fiscal capabilities, we still need sustainable measures to carry on the traction in the long-run after sentiment is boosted by the subsidies in the short term.”
The programme has been key to encouraging household purchases of a number of consumer goods this year. In May alone, sales of home appliances and electronics grew in excess of 50%.
The authorities have said they will distribute a total of 162 billion yuan in two tranches to provinces, with the second allocation announced in late April. Some seven weeks later, the central bank-backed Financial News reported that money is still in the process of being made available to provinces.
While the government may soon roll out the remaining funds planned for this year, economists cautioned that Beijing needs to come up with more sustainable measures to put consumption on track to recovery for the long haul.
Concern over reliance on subsidies is spreading to official circles. A newspaper backed by the State Council, China’s cabinet, has said the government “must improve the income distribution system and try all means to increase income” for residents.
“Boosting consumption cannot just rely on policy stimulus,” according to a front-page editorial carried earlier this month in the Economic Daily.
Mounting fiscal stress is another reason why Beijing’s options are narrowing. With tax and land sales revenues in decline, Chinese authorities accelerated borrowing in recent years to fund stimulus measures to support the economy.
Beijing raised its official fiscal deficit — mostly shouldered by the central government — to the highest level in more than three decades this year, and increased the amount of special sovereign bond issuance to 1.8 trillion yuan, 80% more than in 2024. As a result, China’s interest bill is increasing quickly, in turn eroding the government’s spending power.
But as Donald Trump’s tariffs hurt overseas demand and put China’s industrial production under pressure, it’s unlikely that Beijing will change course on its flagship policy of consumer subsidies any time soon, despite recent hiccups.
