Finance
China’s $41 billion plan to boost consumption is just a start
QINGDAO, CHINA – JANUARY 08: Customers browse at an electronics shop amid an ongoing nationwide trade-in subsidy program on January 8, 2025 in Qingdao, Shandong Province of China.
Zhang Ying | Visual China Group | Getty Images
BEIJING — China’s latest move to boost consumption isn’t meant to jolt all kinds of spending.
Policymakers last week doubled subsidies for a consumer trade-in program to 300 billion yuan ($41.47 billion) this year, matching market expectations — and again steering clear of cash handouts. The subsidies will go toward around 15% to 20% of the purchase price for select products, including mid-range smartphones and home appliances.
That’s an expansion from last year’s 150 billion yuan program, announced in the summer, for a narrower range of products.
The new round of subsidies are “pretty substantial” and will likely support retail sales, similar to how e-commerce companies saw a sales boost in certain products late last year, Jacob Cooke, co-founder and CEO of WPIC Marketing + Technologies, told CNBC on Monday.
While there’s skepticism that the impact of a one-time subsidy won’t last long, Cooke said more subsidy programs will likely follow. He added that China’s “aggressive” 5% GDP growth target and prioritization of consumption indicate that Beijing will do more to support growth — without relying as much on the old playbook of infrastructure spending.
Chinese Premier Li Qiang last week delivered an annual report on government work that named boosting consumption as the top task for the year ahead.
That’s the first time in a decade that Beijing has given consumption such high priority, said Laura Wang, chief China equity strategist at Morgan Stanley. She added that the government work report cited “consumption” 27 times — the most mentions in a decade.
While Beijing has not followed the U.S. or other countries in handing out cash to consumers, Chinese policymakers have increasingly acknowledged the need to counter deflationary pressure at home.
China must focus more on domestic demand given the possibility of “new shocks” to overseas demand, Shen Danyang, head of the drafting group of the Government Work Report and director of the State Council Research Office, told reporters Wednesday in Mandarin, translated by CNBC.
China’s retail sales grew by 3.5% last year, a sharp slowdown from 7.2% growth the prior year. In a sign of a persistent drop in demand, China’s consumer price inflation in February fell below zero for the first time in over a year, according to official data released Sunday.
If prices are too low, it becomes difficult to incentivize businesses to invest and increase consumers’ income, Chen Changsheng, member of the drafting group of the Government Work Report and deputy director of the State Council Research Office, said at the same press conference on Wednesday.
He noted that the work report called for four tasks to address the depressed prices: expanding fiscal support, working to lift consumption, using regulation to prevent price wars and making a greater effort to stabilize real estate prices.
Real estate accounts for the majority of household wealth in China. A crackdown on property market leverage in 2020 spurred a slump that only started to turn around late last year — after a high-level policy call in September to halt the real estate sector’s decline.
Stabilizing real estate can have a significant effect on boosting consumption, similar to wealth effects from a rise in the stock market, said Meng Lei, China equity strategy analyst at UBS Securities, noting expectations that the mainland China A share market has become more strategically important.
Stocks have rallied after China’s stimulus announcements in recent months.
The 300 billion yuan for the subsidies comes from an increase in ultra-long special government bonds for 2025. China said last week it is raising its deficit to 4% as it pursues “proactive fiscal policy.”
NEW YORK, NY – SEPTEMBER 19: The Chinese flag flies outside the New York Stock Exchange during the initial price offering (IPO) for Alibaba Group on September 19, 2014 in New York City. The New York Times reported yesterday that Alibaba had raised $21.8 Billion in their initial public offering so far.
Andrew Burton | Getty Images News
Also helping sentiment are signs that Beijing appears to be turning more business friendly. Chinese President Xi Jinping held a rare meeting with entrepreneurs last month.
Once businesses are more confident, they can hire more and increase wages. The Chinese premier at the high-level meeting last week vowed more efforts to promote residents’ income growth and ease financial burdens for low-to-middle income groups.
The officials pledged more support for the care of the elderly, children and the broader healthcare system, steps seen critical to bolster the country’s safety net, allowing residents to feel comfortable spending more.
To a certain extent, these measures can help to reduce living costs and release potential consumption, said Pan Xiang, a macro foreign exchange analyst at Nanhua Futures.
Incremental pivot
Economists have long called for a structural re-calibration of the income distribution system and policies seen necessary to stimulating domestic consumption in a meaningful way.
The recent pledges signal that “the door [is] cracking open” yet still “very gradual movement of the leadership toward being comfortable with doing more direct support for consumption,” said Michael Hirson, a fellow at Asia Society Policy Institute’s Center for China Analysis.
“We’re not really there yet in terms of a very forceful push,” he added.
Before more support comes, an underdeveloped social safety net, a gloomy job market and low wages have spurred households to save rather than spend, Hirson said.
Household spending accounts for less than 40% of China’s GDP, significantly lower than the international average of roughly 60%, according to the Organization for Economic Co-operation and Development.
EVs, films, tourism
A look at an implementation plan, released Wednesday, from the National Development and Reform Commission reveals how China is thinking about boosting consumption.
The portion describing tasks for 2025 starts with an entire section on boosting consumption and investment. The report calls for efforts to “increase spending power” and encourage the development of products and scenarios that would encourage consumers to spend.
But it’s not a call to support all kinds of shopping.
Top of mind for policymakers is retail sales of “big-ticket items,” according to the report. China also said it would reduce restrictions on real estate transactions and automobile purchases.
Part of the plan includes developing the experience economy — immersive scenarios that combine film, video games, tourism and traditional Chinese culture — similar to the surge in tourists to historical sites associated with last year’s hit video game “Black Myth: Wukong.”
BEIJING, CHINA – JANUARY 15: People queue up in outside a Miniso store to buy co-branded goods featuring characters from the game ‘Black Myth: WuKong’ on January 15, 2025 in Beijing, China. Miniso and ‘Black Myth: WuKong’ launch co-branded products on January 15.
Yi Haifei | China News Service | Getty Images
Chinese authorities also said they would improve “mechanisms for regular pay increases” along with the system for paid vacation days. Employees in China typically get fewer than 10 paid days off and several public holidays include days that must be made up by working for part of a weekend.
The report also discussed the continued plan for subsidizing consumer good trade-ins and upgrading equipment.
But two parts of the sub-section focused more on investment — developing talent, infrastructure and ecological projects — as well as building up “security capacity” in basic research for tech innovation and domestic food supplies.
China will soon release a more detailed plan for boosting consumption, Zheng Shanjie, head of the National Development and Reform Commission, told reporters Thursday.
Preliminary data indicates a sales boost from China’s initial 81 billion yuan in consumption subsidies announced in January, ahead of the this month’s parliamentary meeting.
Retail sales of new energy vehicles, for which buyers enjoy trade-in subsidies of up to 15,000 yuan, surged almost 80% to 686,000 units in February from a year earlier, data from China’s auto industry body showed on Monday.
Smartphone sales for the week of Jan. 20 to Jan. 26 surged by nearly 65% from the year-ago period to more than 9.5 million units, “and maintained a high level in the following weeks,” Counterpoint Research said in a late February report.
The analysis said subsidies are likely encouraging Chinese consumers to replace their smartphones earlier than planned, especially when artificial intelligence features are gaining prominence. The firm estimates the first-quarter subsidy to generate at least two to three points of additional growth this year in China’s smartphone sales.
Warren Buffett walks the floor and meets with Berkshire Hathaway shareholders ahead of their annual meeting in Omaha, Nebraska on May 3rd, 2024.
David A. Grogan
(Follow along with our full coverage of Berkshire Hathaway’s annual meeting here.)
Warren Buffett’s Berkshire Hathaway reported first-quarter results on Saturday that showed a steep drop in operating earnings from the year-earlier period. The conglomerate, which owns a vast array of insurance, transportation, energy, retail and other businesses also warned that tariffs may further hit profits.
Operating earnings, which include the conglomerate’s fully owned insurance and railroad businesses, fell 14% to $9.641 billion during the first three months of the year. In the first quarter of 2024, they totaled $11.222 billion.
On per share basis, operating earnings were $4.47 last quarter, down from $5.20 per class B share in the same period one year ago. That compares to an estimate of $4.89 per class B share from UBS and an overall consensus estimate from 4 analysts of $4.72 a share per FactSet.
Much of that decline was driven by a 48.6% plunge in insurance-underwriting profit. That came in at $1.34 billion for the first quarter, down from $2.60 billion a year prior.
Berkshire’s bottom line also took a hit from the dollar losing value in the first quarter. The company said it suffered an approximate $713 million loss related to foreign exchange. This time last year, it benefited from a $597 million forex gain.
The dollar index fell nearly 4% in the first quarter. Against the Japanese yen, it lost 4.6%.
Berkshire said President Donald Trump’s tariffs and other geopolitical risks created an uncertain environment for the conglomerate, owner of BNSF railway, Brooks Running and Geico insurance. The firm said it’s not able to predict any potential impact from tariffs at this time.
“Our periodic operating results may be affected in future periods by impacts of ongoing macroeconomic and geopolitical events, as well as changes in industry or company-specific factors or events,” Berkshire said in the earnings report. “The pace of changes in these events, including international trade policies and tariffs, has accelerated in 2025. Considerable uncertainty remains as to the ultimate outcome of these events.”
“We are currently unable to reliably predict the potential impact on our businesses, whether through changes in product costs, supply chain costs and efficiency, and customer demand for our products and services,” it said.
BRK.A vs S&P 500 in 2025
The report comes as Berkshire enjoys a stellar year-to-date performance, while the broader market languishes. In 2025, Class A shares of Berkshire are up nearly 19%, while the S&P 500 is down 3.3% as uncertainty from tariffs pressures tech and other sectors.
Berkshire’s cash hoard ballooned to a fresh record during the first quarter, climbing to more than $347 billion from around $334 billion at the end of 2024, as Buffett continues to struggle to find opportunities to deploy the money.
Berkshire was a net seller of stocks for a 10th quarter in a row.
— CNBC’s Yun Li contributed reporting.
Finance
Berkshire meeting ‘bazaar’ features Buffett Squishmallows, 60th anniversary book and giant claw machine
The money manager behind two of the world’s biggest actively managed exchange-traded funds sees a way for investors to stay defensive without leaving the market.
Jon Maier’s firm is behind the JPMorgan Equity Premium Income ETF (JEPI) and JPMorgan Ultra-Short Income ETF (JPST). They’re listed as No. 1 and No. 3 in size globally in their category, according to VettaFi.
The goal: give investors downside protection while generating income.
“When the VIX [volatility] increases, that offers the opportunity for an increased amount of income to the investor of JEPI,” the J.P. Morgan Asset Management chief ETF strategist told CNBC’s “ETF Edge” this week. “Conversely … when the volatility declines, given that the options are written out of the money, it provides some upside in the underlying portfolio.”
JEPI fell around 3% in April while volatility gripped the market. As of Thursday’s market close, the ETF is off about 4% for the year while the S&P 500 is down almost 5%.
JEPI’s top holdings include Mastercard, Visa and Progressive according to JPMorgan’s website as of April 30.
Meanwhile, the JPMorgan Ultra-Short Income Fund focuses on fixed income instead of U.S. equity. The fund is virtually flat so far this year.
“It provides a ballast in your portfolio [and] stability for those investors that are looking to protect principle,” Maier said.
‘Hiding out to weather the storm’
ETF Action’s Mike Akins notes these ETFs are satisfying an important investment need in the market.
“This category is where people are hiding out to weather the storm,” the firm’s founding partner said on the show.
According to J.P. Morgan Asset Management, the JPMorgan Ultra-Short Income Fund had the second-highest volume among active U.S. fixed income ETFs between April 3 and 10 — which marked the year’s most volatile weekly span on Wall Street.
Correction: Jon Maier’s firm is behind the JPMorgan Equity Premium Income ETF and JPMorgan Ultra-Short Income ETF. An earlier version misstated his status.
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