China Doubles Subsidies for Replacing Old Vehicles

Second Measures in Four Months Since April
"Domestic Demand Revitalization"...Up to 3.8 Million Won

The Chinese government has announced a second support measure that doubles the subsidy amount provided when replacing old vehicles to stimulate domestic consumption.

According to China News Service, a semi-official news agency, on the 17th, seven Chinese government departments including the Ministry of Commerce announced the "Additional Implementation Plan for the Automobile Trade-in (以舊換新, replacing old products with new ones)" the day before.

The implementation plan includes subsidies of up to 20,000 yuan (approximately 3.8 million KRW) for switching to new energy vehicles (electric, hydrogen, hybrid) by the end of this year. Even when switching to internal combustion engine vehicles under 2000cc, a subsidy of 15,000 yuan (approximately 2.8 million KRW) can be received. Compared to the first measure announced by the Chinese government in April, this doubles or more than doubles the subsidy amount.

In late April, the seven departments including the Ministry of Commerce announced subsidies of up to 10,000 yuan for switching to new energy vehicles and 7,000 yuan for switching to internal combustion engine vehicles under 2000cc.

The budget for this measure will be borne 85-95% by the central government. Local governments will only need to cover between 5% and up to 15% depending on the region. To this end, the Chinese government plans to use the 1 trillion yuan (approximately 188 trillion KRW) "ultra-long-term special government bond" fund, which began issuance in May to stimulate the economy, according to the news agency.

The fact that the Chinese government has more than doubled the subsidy amount in just four months is interpreted as an intention to revitalize the sluggish consumer market. The news agency pointed out, "Retail sales in China increased by 2.7% year-on-year in July, showing signs of recovery, but still face many difficulties," and added, "Policy efforts are still necessary to promote consumption."

There is also analysis that this move indirectly supports Chinese electric vehicle manufacturers who are blocked by tariff barriers raised by the United States and the European Union (EU).