Since the reform and opening up, China's economy has grown rapidly, and people's living consumption level has greatly improved. With the change of development stage, people's yearning for a better life has become stronger, and the demand for the replacement of consumer goods has continued to increase. Promoting the replacement of old consumer goods with new ones and releasing potential consumption will help to form a higher level of dynamic balance in which demand drives supply and supply creates demand. In March 2024, the State Council issued the "Action Plan for Promoting Large-Scale Equipment Renewal and Replacement of Old Consumer Goods", proposing to implement the replacement of old consumer goods with new ones. This issue invites experts to discuss related issues.

Durable goods consumption shifts from incremental expansion to stock optimization

What replacement actions has the consumer goods market experienced in the past? How was it carried out and what was the effect?

Chen Lifen (Researcher at the Institute of Market Economy, Development Research Center of the State Council): This is not the first time that the replacement policy for old consumer goods has been introduced in China. In order to cope with the international financial crisis in 2008 and expand consumer demand, China implemented a large-scale replacement policy for home appliances and automobiles from 2009 to 2011.

In 2009, the Implementation Plan for Promoting the Expansion of Domestic Demand and Encouraging the ¡°Trade-in¡± of Automobiles and Home Appliances proposed to select nine provinces and cities, namely Beijing, Tianjin, Shanghai, Jiangsu, Zhejiang, Shandong, Guangdong, Fuzhou and Changsha, to carry out the pilot program of ¡°trade-in¡± of home appliances. Starting from June 1, 2010, the policy of ¡°trade-in¡± of home appliances was gradually extended to China in combination with the dismantling and processing capacity of old home appliances in various regions. From this round of the policy of ¡°trade-in¡±, it is mainly to stimulate the potential for the elimination and renewal of durable consumer goods such as home appliances and automobiles through replacement subsidies, further expand domestic demand, especially consumer demand, promote energy conservation and emission reduction, develop a circular economy, and stabilize and expand employment. On the one hand, the central government and the pilot provinces and cities jointly contribute to and share the subsidy funds. For home appliances, the central government and provincial governments bear 80% and 20% respectively. For automobiles, subsidies are given to those who scrap ¡°yellow-label vehicles¡± in advance and replace them with new ones. Local governments can adjust the subsidy standards according to factors such as the model and age of ¡°yellow-label vehicles¡± and urban management. On the other hand, an effective incentive mechanism is established to stimulate consumption potential and benefit enterprises and the people. Consumers who sell old home appliances such as televisions, refrigerators, washing machines, computers, and air conditioners and buy new ones will be subsidized. The subsidy for selling old appliances and buying new ones shall not exceed 10% of the sales price of the home appliances. Transportation subsidies shall be provided for old home appliances that are within the scope of recycling subsidies and sent to dismantling and processing enterprises.

The old-for-new policy has achieved good results. The pilot provinces and cities have initially established an integrated network system for home appliance sales, recycling and dismantling, with obvious benefits in economic, social and resource aspects.

First, it effectively stimulates consumption. Entering the 21st century, the growth rate of per capita disposable income of residents has accelerated, consumption capacity has significantly improved, and demand for durable goods consumption has increased. The old-for-new policy has played a good "catalytic" role in stimulating the growth of durable goods consumption. The automobile-related policy continued until the end of 2010. China has handled about 460,000 vehicles with old-for-new subsidies, stimulating new car consumption by 49.6 billion yuan. The policy on home appliances lasted until the end of 2011, with sales of 92.48 million new home appliances in five categories, driving direct consumption of more than 342 billion yuan, effectively releasing the consumption potential of urban residents.

Second, the production and sales of durable consumer goods were promoted to leap forward, and the industry was promoted. In terms of home appliances, the sales of home appliances trade-in exceeded 110 billion yuan in 2011, accounting for about 1/5 of the total sales of home appliances that year. Combined with the policy of home appliances going to the countryside, the ownership of home appliances in rural areas has increased significantly. In 2012, the number of refrigerators, air conditioners, washing machines, and color TVs per 100 rural households increased by 41.2, 16.8, 21.3, and 22.5 respectively compared with 2007. In terms of automobiles, since China joined the World Trade Organization in 2001, the opening up of the automobile industry has been steadily promoted. At the same time, private automobile companies have accelerated their development. In addition, with the substantial increase in residents' income, private automobile consumption has flourished. At present, some cars have reached the replacement period, and there are more products to choose from on the market, and residents' demand for replacement cars has increased. In 2009, China's automobile production and sales both exceeded 10 million. According to statistics, in 2010, the number of cars subsidized for trade-in was the highest, accounting for 46.4%.

Third, promote energy conservation and emission reduction and develop a circular economy. With the acceleration of industrialization and urbanization, there is an urgent need to change the extensive growth mode. In 2005, the "Several Opinions of the State Council on Accelerating the Development of Circular Economy" was issued, proposing "realizing the unity of economic, environmental and social benefits and building a resource-saving and environmentally friendly society". Thanks to the promotion of the trade-in policy, the energy efficiency of automobiles and home appliances has been significantly improved. The fuel consumption of old cars is 5% to 10% higher than that of new cars, and the power consumption of old home appliances is 20% to 30% higher than that of new home appliances.

Fourth, stabilize and expand employment. The industrial chain of durable consumer goods such as home appliances and automobiles is long. The trade-in policy has not only promoted the development of the retail industry, but also driven the development of logistics, after-sales service, recycling and dismantling industries. These industries are labor-intensive industries with strong employment absorption capacity. It is estimated that there are more than 400,000 employees serving the old-for-new home appliance exchange. This round of old-for-new consumer goods exchange has effectively expanded the scale of employment.

In the new round of old-for-new consumer goods exchange, durable goods exchange is still the focus of stimulating consumption potential, but unlike the previous round, the growth of residents' durable goods consumption is mainly reflected in structural changes, from incremental expansion to stock optimization. By the end of 2023, China's automobile ownership will be 336 million, and the ownership of major categories of home appliances such as refrigerators, washing machines, and air conditioners will exceed 3 billion. There is great demand and potential for the replacement of automobiles and home appliances. It is worth noting that from the implementation and effect of the previous round of old-for-new exchange, there are still problems in the recycling and dismantling links, such as the inability of recycling companies to obtain invoices for tax deductions, the small coverage of dismantling companies, and some home appliances being recycled by small vendors and then flowing into the second-hand market. At present, China's recycling and reuse system for durable goods such as home appliances and automobiles is still imperfect. There are few qualified recycling companies, many decentralized self-employed households, and a lack of professional and technical personnel. The proportion of waste home appliances recycled through formal channels is not high. Therefore, it is crucial to build a closed loop of the entire chain of "replacement + recycling" and improve the recycling and reuse system. The new round of consumer goods trade-in action may bring about a concentrated release of demand. It is recommended to benchmark the international advanced level, give play to the leading role of energy-saving, low-carbon, health and safety standards, promote the same direction of industrial upgrading and consumption upgrading, orderly guide the renewal of consumption and tiered consumption, and continuously and steadily release consumption potential.

Grasp the key links and make precise efforts

Why launch a new round of consumer goods trade-in? What is the demand and development potential of China's consumer goods market?

Wei Qijia (Director and Researcher of the Industrial Economics Research Office of the Economic Forecasting Department of the National Information Center): When looking at the trade-in of consumer goods, we should not only be limited to the consumer goods themselves, but also understand them from the perspective of the economic cycle. Carrying out a new round of old-for-new consumer goods accurately and orderly is an important measure to expand effective demand and smooth the supply-demand cycle. Implementing this policy well will help form a virtuous cycle of mutual promotion between consumption and investment, and benefit enterprises and the people.

It is the right time to promote a new round of old-for-new consumer goods. After the smooth transition of epidemic prevention and control, it will take a process for consumption to recover. Only by truly starting from the needs of thousands of households can we boost consumption with half the effort. Data show that by the end of 2023, China's car ownership will reach 336 million, and the ownership of major categories of home appliances such as refrigerators, washing machines, and air conditioners will exceed 3 billion units. According to this volume estimate, the replacement of automobiles and home appliances is expected to create a market space of one trillion yuan. Judging from the relevant consumption potential and growth rate, in the first quarter of this year, the retail sales of household appliances and audio-visual equipment were 205.3 billion yuan, a year-on-year increase of 5.8%, the retail sales of sports and entertainment products were 30.7 billion yuan, a year-on-year increase of 14.2%, and the retail sales of automobiles were 1116.3 billion yuan, a year-on-year increase of 3.8%. Judging from the absolute volume and growth rate, these consumer goods have a large market space. If the policy can play a better role, it will be able to release huge demand, and the support and promotion of economic growth will be more significant. From a broader perspective, as the economy stabilizes and recovers, the potential for consumption growth will be further released. At present, accelerating the promotion of old-for-new consumer goods will help stimulate consumption potential. Data show that the total retail sales of consumer goods in the first quarter of this year exceeded 12 trillion yuan, a year-on-year increase of 4.7%, and there is still room for improvement. The restoration of consumption is a slow variable, but the trend of accelerated recovery is emerging.

The new round of old-for-new consumer goods focuses on automobiles, home appliances, home kitchens and bathrooms, which is closely related to the development stage of China's economy. Data show that the urbanization rate of permanent residents will be 66.2% in 2023, but the urbanization rate of registered residents is less than 50%. The urbanization process is steadily advancing, and the consumer market still has great potential. At the current stage, consumers' demand for automobiles, home appliances, home kitchens and bathrooms has a large growth space. Promoting old-for-new in these areas can boost consumption while helping to improve the consumption environment. From the perspective of industrial development, on the one hand, it provides impetus for the connection between production and demand, so that inventory and sales maintain a dynamic balance. On the other hand, it is conducive to broadening the sales channels of energy-saving products and further increasing their market share. Recycling is an important focus of the green development of the industry. The replacement of old consumer goods with new ones will innovate and enrich application scenarios and promote high-quality economic development.

Promoting a new round of replacement of old consumer goods with new ones is a systematic project. It is necessary to make precise efforts in policies and grasp the three key links of "standard clearance", "fund clearance" and "operation clearance".

"Standard clearance" emphasizes the leading role of standards. Reasonable standards can drive the healthy development of the industry and promote the improvement of product quality. Outdated standards are not conducive to product replacement. For consumer goods, standards are crucial. Taking the automobile industry as an example, the mandatory scrapping standards for motor vehicles and the vehicle safety and environmental protection inspection standards are directly related to the cycle of automobile product replacement and involve equipment safety issues. It is necessary to form a long-term mechanism that is conducive to the implementation of standards. Taking home appliances as an example, energy consumption standards affect the construction of the entire industry product system. Relevant standards are kept dynamically updated so that preferential policies related to buyers can play an effective role. In addition to "hard standards", "soft standards" are also indispensable. For example, the definition of recycling valuation requires a reference system and reference objects, and the calculation process and standards are clear, so as to promote the smooth operation of all links of the old-for-new exchange.

The "funding barrier" emphasizes the optimization of various types of funding support. Funding support is not "flooding" or support for the sake of support. It must be accurate and effective. For the old-for-new exchange of consumer goods to be supported, it is necessary to comprehensively calculate the amount and proportion of funding support based on various information resources and set a reasonable range. For example, the insurance premium rate of new energy vehicles and the down payment ratio of automobile consumer loans all have the problem of optimizing the proportion and effect. Setting a suitable ratio is conducive to the healthy development of the industry. At the same time, it is necessary to define the source of funds. Some need to be supported by fiscal funds, but it does not mean that fiscal funds can take care of everything. It is recommended to guide producers to make balanced calculations based on sales volume, pricing, and profits, and promote the old-for-new exchange by flexibly adjusting prices.

The "operation barrier" emphasizes the coordination of the entire chain, including dismantling and recycling, construction of operating entities, and after-sales service. From the perspective of policy promotion and implementation, the above links are the "last mile" and will promote the full release of policy dividends. The whole chain of links involved in the old-for-new exchange has a complete and relatively independent internal system. How to achieve interconnection, integration, and professional and standardized operating entities is crucial. It is recommended to cultivate professional enterprises to achieve closed-loop circulation of second-hand goods, promote the integration of resources in the whole chain, and incorporate the after-sales service level into the large network of old-for-new exchange, so as to form a strong traction for the precise and orderly development of the old-for-new exchange business.

Multiple measures to stimulate consumption vitality have achieved results

What measures have been taken by various places to support the old-for-new exchange? What bottlenecks are there in forming the scale effect of renewal?

Yi Shaohua (Director and Researcher of the Market Circulation and Consumption Research Office of the Institute of Finance and Economics Strategy, Chinese Academy of Social Sciences): As China's economic development level steadily improves, residents' consumption capacity is increasing, and higher requirements are put forward for the quality of consumer goods, and the focus of consumption has shifted from survival to development. In the field of physical commodity consumption, some consumer goods markets represented by automobiles and home appliances have entered a stage where both stock and increment are given equal weight from the incremental stage. Through the old-for-new exchange, it can not only stimulate potential consumption, but also better meet the people's needs for a better life, forming a virtuous cycle of consumption and investment that promote each other.

At present, the old-for-new exchange of consumer goods mainly includes durable consumer goods, bulk consumer goods, such as home appliances, electronic products, and automobiles, etc., and joint promotion activities are carried out through government support and corporate profit-sharing. Under the policy incentives, various places have stimulated consumption vitality and facilitated consumer groups in various ways, and achieved positive results.

In conjunction with the Nanjing International Consumer Festival (Spring) event, the Jiangbei New District of Nanjing City, Jiangsu Province, with the theme of "Renewal Season", issued a total of 10 million yuan in automobile consumption subsidies. The city's Bureau of Commerce has linked up with Suning.com and JD Five Star, two leading companies, to carry out the old-for-new exchange of home appliances. JD Five Star Appliances, in conjunction with the leading home appliance brands, has increased the old-for-new subsidies for categories such as air conditioners, color TVs, smoke stoves, and mobile phones and digital products, with a maximum subsidy of 4,000 yuan per unit; Suning.com provides free door-to-door, disassembly, and transportation services to make it more convenient for consumers to replace home appliances.

The Department of Commerce of Guangxi Zhuang Autonomous Region has allocated RMB 16 million to carry out the subsidy activity of exchanging old appliances for new ones. Through the renovation of second-hand houses and old residential quarters, the industry cooperation channels are opened up by means of government subsidies, merchant concessions, platform support, etc., and the home improvement business is catalyzed by home appliance resources, thereby driving the upgrading of home appliances. Taking Liuzhou City as an example, the city provides diversified supply and services according to the differentiated needs of consumers for upgrading, and provides consumers with personalized design, garbage removal, and preferential replacement one-stop transformation services, which directly promotes the release of home appliance consumption demand.

Shenyang City, Liaoning Province, has increased the intensity of exchanging old appliances for new ones through the joint subsidy of home appliance sales companies and manufacturers. At the same time, it has organized home appliance distribution companies to jointly carry out the public welfare activities of exchanging old appliances for new ones with community streets, and carried out free cleaning and free testing of home appliances for special groups. Hainan Province has provided subsidies for the scrapping and replacement of old cars and the purchase of green home appliances, organized home appliance companies in the province to carry out exchanging old appliances for new ones, encouraged tax-free companies to make concessions, and formed a multi-party linkage promotion trend. Hunan Province has launched activities such as Home Renewal Season, Home Decoration Consumption Festival, and Home Decoration Consumption Festival in terms of home decoration kitchen and bathroom renewal, and built 100 green, intelligent, and aging-friendly model rooms throughout the province, using the model rooms as a demonstration to lead home decoration renewal activities, so that consumers can experience the charm of smart life on the spot.

Of course, there are still some bottlenecks that need to be broken through.

First, there is insufficient innovation in financial instruments, and the margin of profit concessions by enterprises is limited. The old-for-new exchange of consumer goods involves a wide range, showing characteristics such as long cycles and large spans. It is difficult to achieve it well by the strength of enterprises alone. It is necessary to provide support through fiscal and taxation policies and financial instrument innovation to alleviate the capital pressure of enterprises and release policy dividends. At present, some financial institutions have made useful explorations in this regard. For example, the Fujian Branch of China Construction Bank has launched the "Five New" measures of financial support for equipment renewal and old-for-new exchange of consumer goods from the aspects of supporting equipment, product innovation, consumption scenarios, preferential activities and policy guidance, which has effectively improved the quality and efficiency of financial services, helped expand domestic demand and promote consumption.

Second, it is necessary to find the right entry point to stimulate consumers' motivation to replace old goods. Although residents have a demand for upgrading the quality of consumer goods, there are many influencing factors. Durable consumer goods such as home appliances are large items with high prices. Most consumers rarely replace items when they are still usable. Even if there are some price discounts, most people find it difficult to take action. At present, the recycling prices of old home appliances, old furniture and other items are relatively low, which is far from the psychological expectations of consumers, and has also become one of the factors affecting the old-for-new exchange. It is still challenging to promote consumers to transform potential demand into real demand and make them willing to exchange and actively exchange.

Third, the recycling system for used home appliances needs to be improved. In the process of releasing the demand for home appliance replacement, the recycling of used home appliances faces difficulties. Some home appliance and furniture manufacturers have given up recycling related products due to the high recycling costs. At the same time, factors such as the lack of storage sites for used items and the difficulty of recycling vehicles entering the city have also restricted the expansion of the market scale of the old-for-new exchange of home appliances and furniture to a certain extent. It is recommended to build regional transfer stations for used home appliances in appropriate places, and collect used home appliances and furniture through platforms, merchants and third-party resources, and transport them to the disassembly site. At the same time, household appliance manufacturers are encouraged to build a recycling system of "recycling-disassembly-regeneration-remanufacturing" to achieve green and low-carbon development.

Enable efficient and smooth recycling of old products

After replacing new products, how can old products be recycled efficiently?

Peng Bo (Researcher at the Institute of International Trade and Economic Cooperation of the Ministry of Commerce): In March 2024, the State Council issued the "Action Plan to Promote Large-Scale Equipment Renewal and Consumer Goods Trade-in" (hereinafter referred to as the "Action Plan"). According to the "Action Plan", the replaced consumer goods can be efficiently recycled through the circulation of second-hand goods, remanufacturing, cascade utilization, and recycling.

The "Action Plan" proposes to support the circulation and trading of second-hand goods. The complete automobile market includes new and used car markets, and the transaction volume of used cars in major developed countries exceeds that of new cars. By the end of 2023, China's automobile ownership will reach 336 million, with 34.8 million newly registered motor vehicles, and the cumulative transaction volume of used cars in China will be 18.4133 million, a year-on-year increase of 14.88%. In terms of exports, China's used car exports will exceed 100,000 in 2023, accounting for only 2% of the overall automobile export scale of 4.91 million. Most of them are parallel export cars, and the used car market has broad development potential.

The market for used electronic products has great potential. Apple has launched an iPhone trade-in business in the United States, where consumers can exchange old iPhones for certain points in Apple stores, which can be offset when purchasing a new generation of mobile phones. In recent years, China's mobile phone and home appliance markets have developed rapidly, with rapid product updates and iterations, and consumer demand has grown rapidly. Data shows that China's total mobile phone shipments will reach 289 million units in 2023, and the number of idle old mobile phones will increase year by year. It is estimated that the total idle amount will reach 6 billion units during the "14th Five-Year Plan" period. Trade-in will promote the accelerated update and iteration of mobile phone production, and the electronic products industry will usher in greater development space.

Second-hand furniture transactions continue to develop. According to the survey data of the Beijing Municipal Bureau of Statistics, among the more than 3,000 citizens who participated in the survey, 11.1% of the respondents discarded large furniture in 2023, of which 46.5% chose to sell scraps. Furniture with good quality and brand name is usually sent to the second-hand market for resale, among which solid wood and second-hand furniture with certain collection value are relatively popular.

The Action Plan proposes to promote remanufacturing and cascade utilization in an orderly manner. This requirement also applies to consumer goods. The earliest "remanufacturing" appeared in the 1930s. In 2010, the National Development and Reform Commission and other departments jointly issued the "Opinions on Promoting the Development of the Remanufacturing Industry", proposing that compared with manufacturing new products, remanufacturing can save 60% of energy, 70% of materials, 50% of costs, almost no solid waste, and reduce air pollutant emissions by more than 80%. At present, the global remanufacturing industry market size has exceeded 150 billion US dollars. The annual output value of China's remanufacturing industry has exceeded 100 billion yuan, making it one of the largest remanufacturing markets in the world.

The price of remanufactured engine products of Jinan Fuqiang Power Co., Ltd. is only 75% of the original price of new products. If you use old engines to exchange for remanufactured products, you can also offset 25% of the price. BYD is committed to the production of new energy vehicles and attaches great importance to the remanufacturing and cascade utilization of automotive power batteries. When the available capacity of the power battery is between 60% and 80% and cannot meet the use requirements, the used power batteries are recycled for testing and maintenance, and then reassembled and sent to the power and communication fields for the construction of energy storage power stations; when the available capacity of the power battery further decays to 20% to 60%, it can be recycled and disassembled into single batteries for solar street lights, UPS power supplies and other small energy storage tools; when the available capacity decays to less than 20%, it is scrapped and useful chemical components and metal elements are extracted and recycled for the production of new power batteries. GEM is one of the leading companies in the economical and large-scale recycling of electronic waste and used batteries. It has built a full life cycle circular value chain from recycling, remanufacturing to cascade utilization to ensure the efficient recycling of used power batteries.

The Action Plan proposes to promote high-level recycling of resources. Improving the capacity and level of resource recycling can significantly reduce the demand for primary resources and reduce the pressure of mineral resource mining on the natural environment.

According to statistics from the China Resource Recycling Association, the number of scrapped cars will increase by 7.56 million in 2023, an increase of 32%. The recycling of used furniture will exceed 200 million pieces, the total recycling of used household appliances will reach 4.5 million tons, and the annual discarded mobile phones will reach more than 400 million. It is estimated that after the fine dismantling of a scrapped small car, about 36 kg of rubber, 70 kg of plastic, 740 kg of scrap iron, and 100 kg of aluminum can be decomposed; an ordinary refrigerator can recycle 9 kg of plastic, 38.6 kg of iron, and 1.4 kg of copper; 1 ton of used mobile phones can be refined into 400 grams of gold and 2,300 grams of silver.

Miluo City, Hunan Province, has gathered more than 100 companies specializing in the treatment of used household appliances, forming a relatively complete industrial chain, and nearly 10,000 tons of usable materials are obtained from the recycling and dismantling of used household appliances every day. Among them, the recycled metals are sold to the city's auto parts manufacturers for reproduction, which is both environmentally friendly and reduces production costs. Haier Group practices the concept of sustainable development, supports the green and sustainable development of the entire industry chain, and has built the industry's first home appliance recycling interconnected factory that integrates "recycling-disassembly-regeneration-reuse", covering three major systems of recycling, disassembly, and regeneration. It has customized 6 waste home appliance disassembly lines, 1 recycled plastic washing and sorting line, and 13 high-quality recycled new material granulation lines. At present, the factory has an annual disassembly capacity of 2 million waste home appliances and a recycling capacity of 30,000 tons of recycled materials.

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