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.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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