China is buying appliances and iPhones. What happens when the subsidies stop?

Shoppers are taking advantage of a $42 billion government trade-in programme aimed at boosting spending. But in recent weeks, some cities have started to cut back on the subsidies, writes Daisuke Wakabayashi from Seoul

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Browsing through the selection of Apple iPhones at an electronics store in Tianjin in eastern China, Zhan Demi rattled off the reasons she needed to upgrade her device.

Photos and videos of her toddler were quickly eating up her phone's storage. One of her children’s teachers asked her to download various apps, again straining the limits of her device. But the factor that ultimately brought her into the store was a government trade-in scheme aimed at stimulating stubbornly sluggish consumer spending in China.

Confronting a trade war with the United States, China's government has poured $42 billion this year into a consumer trade-in programme, double last year’s amount. The aim was to jolt a much-needed surge in spending at a precarious moment for the economy by subsidising discounts for a wide variety of consumer goods, from washing machines to electric vehicles.

The scheme has proved so successful that several municipalities have suspended or curtailed the programme in recent weeks to prevent the money from running out prematurely. In May, retail sales grew a surprising 6.4%, exceeding economists’ expectations, spurred by robust demand for smartphones and home appliances.

“We want to shear wool from the sheep,” Ms Zhan said, using a popular Chinese idiom for seizing an opportunity. She had already taken advantage of the scheme to buy an energy-efficient air-conditioner and other home appliances at discounts of up to 20%. “If we can upgrade everything at once when there's a good deal, we'll do it,” she said.