Finance

China’s plan to boost consumption by encouraging trade-ins has yet to show results

Published

9 months ago

September 13, 2024

Business Finance News

A banner plays up China’s trade-in policy at a home goods expo in Qingdao, Shandong province, China, on June 1, 2024.

Nurphoto | Nurphoto | Getty Images

BEIJING — China’s plan to boost consumption by encouraging trade-ins has yet to show significant results, several businesses told CNBC.

China in July announced allocation of 300 billion yuan ($41.5 billion) in ultra-long special government bonds to expand its existing trade-in and equipment upgrade policy, in its bid to boost consumption.

Half that amount is aimed at subsidizing trade-ins of cars, home appliances and other bigger-ticket consumer goods, while the rest is for supporting upgrades of large equipment such as elevators. Local governments can use the ultra-long government bonds to subsidize certain purchases by consumers and businesses.

While the targeted move to boost consumption surprised analysts, the measures still require China’s cautious consumer to spend some money up front and have a used product to trade in.

“We are not aware of companies that have seen this translate, since the promulgation of the measures, into concrete incentives on the ground in China,” Jens Eskelund, president of the EU Chamber of Commerce in China, told reporters earlier this week.

“Our encouragement would be that now we focus on execution [for] visible, measurable results,” he said.

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The chamber’s analysis found that the central government policy’s total budgeted amount is about 210 yuan ($29.50) per capita. Given that “only a portion of [it] will reach household consumers, it is unlikely that this scheme alone will significantly increase domestic consumption,” organization said in a report published Wednesday.

Analysts are not overly optimistic about the extent to which the trade-in program could support retail sales.

UBS Investment Bank Chief China Economist Tao Wang said in July that the new trade-in program could support the equivalent of about 0.3% of retail sales in 2023.

China’s retail sales for August are due Saturday morning. Retail sales in June rose by 2%, the slowest since the Covid-19 pandemic, while July sales growth saw a modest improvement at 2.7%.

New energy vehicle sales, however, surged by nearly 37% in July despite a drop in overall passenger car sales, according to industry data.

The trade-in policy more than doubled existing subsidies for new energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 yuan per car, respectively.

Waiting for elevator modernization

In March and April, China had already started to roll out policy broadly supporting equipment upgrades and consumer product trade-ins. Around the measures announced in late July, officials noted 800,000 elevators in China had been used for more than 15 years, and 170,000 of those had been in service for more than 20 years.

Two major foreign elevator companies told CNBC in August they had yet to see specific new orders under the new program for equipment upgrades.

“We are still at the very early stage on this whole program right now,” said Sally Loh, president of China operations for U.S. elevator company Otis. Businesses know about the overall monetary amount, she said, but “as to how much is being allocated to elevators, this hasn’t really been clarified.”

“We do see that definitely there is a lot of interest by the local government to make sure this kind of funding from the central government is being effectively deployed to the residential buildings that most need this replacement,” she said, noting the announced funding “really helps to resolve some of the financing issues that we saw were a big concern for our customers.”

Otis’ new equipment sales fell by double digits in China during the second quarter, according to an earnings release. It did not break out revenue by region.

Finnish elevator Kone said its Greater China revenue fell by more than 15% in the first six months of 2024 year on year to 1.28 billion euros ($1.41 billion), dragged down by the property slump. That was still more than 20% of Kone’s total revenue in the first half.

“Definitely we’re excited about the opportunity. We’ve been excited about it for a long time,” said Ilkka Hara, CFO of Kone. “This is more of a catalyst that will enable many to make the choice.”

“I definitely see opportunity in the future,” he said. “How quickly it materializes, that’s hard to say.”

Hara pointed out that new elevators can save more energy versus older models, and said Kone plans to grow its elevator service business in addition to unit sales.

Secondhand market outlook

Central government policies can take time to get implemented locally. Several major cities and provinces have only in the last few weeks announced details on how the trade-in program would work for residents.

For ATRenew, which operates stores for processing secondhand goods, the ultra-long government bonds program to support trade-ins does not have a short-term impact, said Rex Chen, the company’s CFO.

But he told CNBC the policy supports the longer-term development of the secondhand goods market, and he hopes there will be more government support for building trade-in kiosks in neighborhood communities.

ATRenew focuses on pricing and resale of selected secondhand products — the company claims it became Apple’s global trade-in partner last year.

In specific categories and regions — such as mobile phones and laptops in parts of Guangdong province — trade-in volume did rise this summer, Chen said.

Trade-in orders coming from e-commerce platform JD.com have risen by more than 50% year on year since the new policy was released, according to ATRenew, which did not specify the time frame.

— CNBC’s Sonia Heng contributed to this report.

Finance

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Published

2 days ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

2 days ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”