China's cities increase consumer subsidies to boost weak demand

Once-prolific shoppers are cutting back on spending amid uncertain economic outlook

- Joyce ZK Lim

China Correspondent SHENZHEN - At the entrance of a store selling household appliances in the southern Chinese tech hub of Shenzhen, a banner screams: "Up to 20 per cent off with state subsidies".

Inside, green-coloured discount stickers adorn kitchen stoves, washing machines, laptops and more.

Purchasing a new air-conditioner now would shave more than 500 yuan (S$91) off its 2,699 yuan sticker price, a salesperson tells this reporter, pointing to an energy-efficient model.

It is a better offer than what shoppers here would have enjoyed as recently as August - when state subsidies for these appliances were at most 10 per cent.

Footfall at the store was low when The Straits Times visited on a weekday afternoon, but local media reported sizeable turnouts the weekend before, right after the new subsidies were announced on Sept 5.

Across the country, cities like Shenzhen have been increasing subsidies for consumers on a range of big-ticket durable items, under a nationwide programme to boost persistently weak domestic demand.

This depressed consumption, which comes as once-prolific Chinese shoppers cut back on spending amid an uncertain economic outlook, is bad news for China and not just because it weakens short-term gross domestic product growth.

The bigger problem is that it could feed into a broader deflationary spiral, risking a long-term stagnation reminiscent of Japan's lost decades.

Already, deflationary pressures are weighing on the world's second-largest economy.

Overall consumer prices have been growing at a muted pace, and falling in categories such as transportation and communications devices. Factory-gate prices have been in decline since October 2022.