How to break the trade-in situation?
China News Weekly reporter: Xie Xuewei
Published in the 1135th issue of "China News Weekly" magazine on April 8, 2024
In the precision manufacturing production workshop of Jianqiao Industrial Park in Dadukou District, 20 kilometers away from Jiefangbei, Chongqing, the originally rough gears were gradually smoothed and rounded by the grinding machine, and workers busily shuttled between the production lines.
These roaring machines are high-end motorcycle gear processing equipment and new energy vehicle gear processing equipment that Chongqing Akita Gear Co., Ltd. just spent 160 million yuan to update last year. According to Liu Yi, the company’s vice chairman and president, the company uses technology every year. Funds for upgrading and upgrading equipment to transform and expand production capacity have reached more than 100 million yuan. "We are waiting for this policy to come out. It can be said that we have been waiting for it for a long time."
The policy Liu Yi mentioned is the old-for-new policy that has been vigorously promoted recently. On March 28, the State Council held a video conference to promote large-scale equipment updates and trade-in of consumer goods. Li Qiang, member of the Standing Committee of the Political Bureau of the CPC Central Committee and Premier of the State Council, emphasized the need to solidly promote large-scale equipment updates and the replacement of old consumer goods with new ones, so as to effectively promote economic transformation and upgrading and improve the quality of life of urban and rural residents.
As a policy "hot word" this year, trade-in for new appeared as a keyword for the first time at the Central Economic Work Conference at the end of December last year, when it began to be released as a signal to expand domestic demand. Later, the term appeared in the fourth meeting of the Central Financial and Economic Commission and this year’s National Two Sessions.
On March 13, the State Council issued the "Action Plan for Promoting Large-Scale Equipment Updates and Trade-In of Consumer Goods" (hereinafter referred to as the "Plan"), which clearly implements four major actions: equipment update, trade-in of consumer goods, recycling, and standard improvement.
In fact, as early as 2009, the trade-in policy for home appliances and cars was vigorously implemented across the country. After 15 years, what exactly is “new” in the new round of trade-in, and how can it be carried out smoothly?
What's new?
Compared with the previous round of trade-in policies for home appliances and cars, equipment updates are undoubtedly one of the highlights of this round.
"This round has unprecedentedly included the updating of production equipment into the scope of trade-in for old ones." Guo Zhanqiang, secretary-general of the China Circular Economy Association, has long been engaged in policy research and industry consulting work related to circular economy. He said in an interview with China News Weekly.
Guo Zhanqiang said that the role of equipment updates on the production side is to accelerate the elimination of backward production capacity and excess production capacity, and to create space for new technologies, new equipment, new concepts, and new business formats, "that is, to create space for the application of new quality productivity."
The "Plan" points out that it will focus on seven fields: industry, agriculture, construction, transportation, education, culture and tourism, and medical care, involving key industries such as steel, building materials, electricity, machinery, aviation, shipping, and electronics, as well as construction and municipal infrastructure. Equipment updates.
Why these seven areas? Guo Zhanqiang said that they occupy an absolutely dominant proportion on the supply side of the national economic system, covering all fields of clothing, food, housing, transportation and entertainment, and are closely related to public life. In addition, the equipment of some mainstream enterprises in my country's industrial basic materials has generally been in service for more than 10 years or even as long as 15 years. The technical level back then was far from the intelligent, green and integrated requirements of today's modern industrial system.
For example, the proportion of clinker production capacity above the national energy efficiency benchmark level in the national cement industry should reach 30%, and the clinker production capacity below the energy efficiency benchmark level should be basically cleared. However, in practice, the energy efficiency level of some production capacities in the cement industry is lower than the national benchmark level, and even further falls short of the national energy efficiency benchmark level requirements.
Guo Zhanqiang took the construction field mentioned in the "Plan" as an example. Traditional buildings have relatively low energy efficiency, external wall insulation lacks ventilation systems, and water supply systems, pipelines, emergency firefighting equipment, etc. also face safety risks caused by aging. In addition, aging As the trend intensifies, residential buildings without elevators lack aging-friendly renovations. Therefore, it is urgent to upgrade facilities and equipment and energy-saving renovations for a large number of residences over 40 or 50 years old.
The update of advanced equipment will be a huge market. Zheng Shanjie, director of the National Development and Reform Commission, said at this year's National Two Sessions that preliminary estimates of equipment renewal will be a market with an annual scale of more than 5 trillion yuan.
Similar to 15 years ago, the trade-in of consumer goods is mentioned again, but its essential connotation is completely different. Su Jian, a professor at the School of Economics at Peking University and director of the National Economic Research Center, told China News Weekly that unlike the previous round of "home appliances and cars going to the countryside" to meet people's rigid needs, this round focuses on "improving quality." "New" is meeting its improvement needs; the target group has also changed. At that time, it focused on purchasing new household appliances and cars in rural areas. This round of "old" is the premise and is not limited to the rural market, that is, it targets existing cars, home appliances, etc. Owners of consumer durables.
Data from the National Bureau of Statistics and the Ministry of Public Security show that in 2009, the number of electrical appliances and cars owned by households in my country exceeded 2 billion and 72 million. These two figures will reach 3 billion units and 340 million vehicles respectively in 2023.
Guo Zhanqiang also said that the lifespan of home appliances and cars is generally 10 to 15 years and 8 to 10 years respectively. Theoretically, my country's cars and home appliances have entered the peak period of "replacement". The relevant person in charge of the service business of Jingdong Home Appliances Home Life Division also told China News Weekly that according to industry estimates, these existing home appliances will be eliminated at a rate of 10% every year.
Minister of Commerce Wang Wentao said at this year's National Two Sessions that there are more than 16 million passenger cars using National III and below emission standards, of which more than 7 million are more than 15 years old; on average, about 270 million home appliances meet the standards every year The safe use period has been exceeded. Zheng Shanjie also pointed out at this year's National Two Sessions that the upgrading of automobiles and home appliances can create a trillion-dollar market space.
Similar to the production side, the "quality improvement and upgrading" on the demand side is also facing changes in standards, from "is there any" in the past to "is it good or not" today. Because of this, the "Plan" issued by the State Council breaks down the replacement of old products with new ones into four major actions, one of which is to improve standards.
"In fact, it plays a pulling role." Guo Zhanqiang believes that the goals of "replacing" and "updating" need to be based on standards improvement, improving product performance standards, energy utilization efficiency, etc.
He also specifically pointed out that if supply changes and consumption does not follow suit, new overcapacity will result. Therefore, the four actions of updating equipment, replacing old consumer goods with new ones, improving standards, and recycling as a back-up are closely linked.
The dilemma of recycling
"It should be made clear that enterprises independently assume the responsibility of replacing old appliances with new ones, and excessive government subsidies should be cancelled." Dong Mingzhu, a representative of the National People's Congress and chairman of Gree Electric Appliances, suggested during this year's National Two Sessions that the second-hand home appliance market should be regulated, a sound recycling system for used home appliances should be established, and supervision should be strengthened. and evaluation to increase consumer engagement.
In the last round of actions focusing on replacing old consumer goods with new ones, the establishment of a circular economy was one of the difficult issues. In this round, recycling is also one of the four major actions of dismantling.
Mo Xin, deputy director of Tsinghua Suzhou Environmental Innovation Institute, who participated in the formulation of the old-for-new policy 15 years ago, said that the biggest obstacle in the recycling process at present is the standardized construction of the recycling system.
Dai Tiejun, a professor at Beijing University of Technology who has been engaged in circular economy policy and practice research for a long time, said in an interview with China News Weekly that the "Implementation Measures for Replacing Old Home Appliances with New ones" issued in 2009 requires dismantling and processing enterprises. During the pilot period, in principle, Each pilot province selects 1 to 2 dismantling and processing companies, and the pilot city selects 1 company. Non-designated dismantling and processing companies are not allowed to purchase and process old home appliances that have been traded in for new ones.
However, during a survey in a southern province, Dai Tiejun found that the number of approved dismantling and processing companies in a pilot area was far more than the stipulated 1 to 2. In addition, the private "guerrillas" who walk around the streets are attracted to acquire a large number of used electrical appliances because of their low operating costs, independent and flexible pricing, and convenient recycling. They then illegally dismantle and sell the core parts, which has given rise to a large number of people with economic benefits. oriented industrial chain regardless of environmental costs. In contrast, qualified formal recycling and processing companies are faced with low collection rates, high operating costs, and low recycling prices.
With illegal dismantling and wild growth, environmental pollution will follow. The former head of the Legislative Affairs Office of the State Council and the Ministry of Environmental Protection pointed out in 2009 when answering reporters' questions that in order to pursue short-term benefits, individual handicraft workshops in some places used primitive and backward methods such as open-air burning and strong acid immersion to extract precious metals, and arbitrarily discharged waste gas and waste liquid. , waste residue, causing serious pollution to the atmosphere, soil and water bodies.
In addition, Dai Tiejun also discovered that the destructive and extensive "private dismantling" of the year resulted in the waste of valuable reusable resources such as various rare and precious metals.
Relevant data also confirms that this system has not yet been standardized. In 2023, the total volume of waste household appliances recycled in my country will reach 4.5 million tons, but the proportion of environmentally friendly dismantling and recycling through formal channels only accounts for about 20%. Data from the China Circular Economy Association also shows that my country produces an average of more than 400 million used mobile phones every year, but only about 5% of used mobile phones can enter recycling channels such as professional recycling platforms and trade-in activities.
Another issue is funding. In 2011, the state established a waste electrical and electronic product processing fund to support the "regular army" in the dismantling industry. According to requirements, producers of electrical and electronic products need to pay into the fund, while dismantling companies enjoy subsidies.
The person in charge of an environmental protection company in Shantou, Guangdong once said in an interview with the media that the recycling cost of dismantling companies is relatively high. Taking air conditioners as an example, the recycling price is 470 yuan, but after dismantling, it can only be sold for 420 yuan, so the fund subsidy is for waste The key to profitability for home appliance dismantling companies.
However, in January this year, the Ministry of Finance announced the suspension of fund collection, and the source of subsidies will be supported by the central special fund. Financial support has become the basis for dismantling enterprises.
Several interviewees pointed out that relying on financial subsidies is not a long-term solution. Guo Zhanqiang emphasized that limited financial subsidies can only maintain the survival of enterprises and cannot help them upgrade. For traditional dismantling companies, upgrading the industry requires continuous investment and innovation capabilities, otherwise they will be eliminated in this round of trade-in transformation.
Dai Tiejun also said that the common practice in regulating recycling internationally is to implement the extended producer responsibility system, and different stakeholders should bear corresponding responsibilities. In Germany, recycling and processing costs are shared in different proportions by the government, manufacturers, consumers, etc. This can encourage manufacturers to consider the use of harmless raw materials and recycling design from the perspective of the product life cycle from the design stage, and actively participate in During the recycling process, an effective incentive is formed to prevent and control pollution at the source.
Therefore, he suggested that we should formulate traceability technical standards and recycling specifications throughout the entire life cycle of electronic products, and clarify the environmental and economic responsibility systems of who produces, who uses, who consumes, and who pollutes, to ensure that The recycling industry is developing healthily and sustainably.
What is the source of funds?
The problem of funding does not only exist within the circular economy. After the launch of this round of trade-in, the topic that public opinion is most concerned about is also the current "tight life" of various departments and localities, where does the money come from?
The "Plan" points out that fiscal, taxation, financial, investment and other policy support will be increased, and a good policy mix will be implemented to guide businesses to appropriately share profits and create a scale effect of renewal. In Su Jian's view, this means that compared with the previous round of trade-in, this policy is unprecedentedly powerful.
The last round of direct fiscal subsidies to support consumption occurred from 2009 to 2013, and the subsidy funds were jointly borne by the central and provincial finances. Among them, the central government finances 80% and the provincial finances bear 20%.
Moxin said that this round of trade-in can allow "the government to get some, enterprises to give some, and finance to support some."
In addition to financial subsidies, consumer loans, interest rate concessions and other means can also be used, such as issuing consumer coupons to promote consumption.
Zhao Jian, president of Nishizawa Research Institute and member of the Chief Economist Forum, told China News Weekly that the intensity of subsidies and the ratio between the central and local governments depend on the elasticity of consumers and producers. If the intensity is too large, it will be too large for small cities. Causing financial waste.
At present, although the specific subsidy details have not yet been released, on the consumer side, local governments, manufacturing companies and e-commerce platforms have already "entered the market".
For example, the Wuxi Municipal Commerce Bureau stated that consumers who trade in home appliances and the actual payment for a single item reaches 4,000 yuan, 6,000 yuan, or 10,000 yuan will be given an additional trade-in incentive of 200 yuan, 300 yuan, or 500 yuan. Brands such as Midea, Gree, and BYD have also launched promotions and replacement subsidies for used home appliances.
In addition, e-commerce platforms have also made efforts. Suning.com has launched a special trade-in subsidy program worth tens of billions, offering large subsidies with a direct discount of up to 30%. JD.com announced that it will jointly invest 6.5 billion yuan with 3C digital, home appliances, automobiles and other brands to support a new round of large-scale equipment updates and consumer goods trade-in activities.
However, in addition to the consumer side, regarding the scope of subsidy support, the "Plan" requires coordinated support for all links of the entire chain.
The last round of trade-in fiscal subsidies involved consumers who sold old home appliances and purchased new ones, winning bidders for home appliance recycling companies, and home appliance dismantling and processing companies. As for the groups covered by this round of subsidies, will the subsidies directly stimulate the demand side, or will they stimulate consumption and investment from the production side by reducing production costs and affecting selling prices? Zhao Jian believes that different industries require different policies, which must be continuously adjusted based on feedback from policy implementation to ensure maximum policy effects.
From an industry perspective, Zhao Jian believes that since automobile exports are in good shape, subsidies can be relatively small; for the home appliances and home furnishing industry with high production capacity, subsidies must be large.
According to data from the Ministry of Commerce that year, trade-in sales drove consumption of more than 170 billion yuan in 2010. A total of 32.224 million new home appliances were sold nationwide, achieving sales of 121.11 billion yuan, and 33.446 million old home appliances were recycled. In terms of automobiles, as of May 24, 2010, a total of 106,000 vehicles had been subsidized across the country, with a subsidy amount of 1.4 billion yuan, boosting new car consumption by 12.6 billion yuan.
Many experts agree that the old-for-new policy was effective at that time, and had a significant effect in expanding domestic demand and boosting consumption. But they also pointed out that the current consumption scene and environment have changed a lot.
Zhao Jian bluntly said that when the last round of trade-in policy was implemented, my country was still in the initial stage of urbanization. There was huge room for development in real estate debt, housing supply, urban development and infrastructure construction. The gap between urban and rural living standards was obvious. Rural household appliances, automobiles, etc. When the retention rate is relatively low, the trade-in actually targets the lower-tier markets in counties, towns and rural areas, releasing rural consumption space in the form of bringing home appliances to the countryside. In Su Jian's words, the trade-in program that began in 2009 "boosted" China's economy.
At present, Zhao Jian believes that the gap between urban and rural areas has narrowed. "There is a lack of gap potential, the expansion of domestic demand driven by real estate has weakened, and has even become a burden. Urban demand is almost saturated. In addition, durable goods have a long lifespan, and the space for replacing old ones with new ones remains to be seen."
He admitted that this round of trade-in to promote consumption will face the challenge of weak consumer and investor expectations. Su Jian also bluntly said that people currently need a certain amount of savings to regain a sense of security, and this mentality may compromise the effectiveness of the policy.
Therefore, experts have proposed that in order to improve the policy effect, the focus should be to promote the enthusiasm of the "replaceable or non-replaceable" group, and the cost of upgrading products should not exceed their budget.
Su Jian said that policy target groups and enterprises must be precise. For enterprises that are indeed in need of old equipment, they can take advantage of this opportunity to upgrade and renovate. The preferential policies at the right time will help them make update decisions and actions.
In the field of consumer goods, how to stimulate consumers' desire to buy also needs attention. Especially in the field of home appliances, there is no consensus among consumers on the "life span" of home appliances. The above-mentioned person in charge of the service business of JD.com’s Home Appliances and Lifestyle Division told China News Weekly that many consumers lack the concept of “lifespan” of home appliances and repair and repair products that repeatedly malfunction.
Dong Mingzhu suggested during this year's National Two Sessions that the service life of home appliances should be clearly stipulated. "Although it is not broken, it is already aging and its performance has declined, which will threaten the safety of people's lives and property."
Su Jian pointed out that improving the performance of products and equipment should be used as a starting point to stimulate demand or consumption, especially for durable white household appliances. Only with functional iteration or performance jump can consumption become more attractive.
"China News Weekly" Issue 13, 2024
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