China is introducing an ambitious policy designed to both stimulate its economy and reduce carbon emissions. Dubbed the "Two New" policy, it's all about upgrading industrial equipment, promoting the trade-in of old consumer goods, and making strides toward a greener future. While the policy was first announced in 2023, it's been gaining momentum since President Xi Jinping emphasized its importance in 2024. Let's take a closer look at what this policy entails, how it works, and what impact it could have.
What Exactly is "Two New"?
The "Two New" policy stands for "large-scale equipment upgrades and trade-in of consumer goods." In simpler terms, it's a plan to replace outdated machinery and household appliances with more energy-efficient alternatives, while simultaneously boosting domestic consumption. The goal is to support economic growth, improve energy efficiency, and reduce emissions.
The idea first emerged in 2023, following an economic conference organized by the State Council, which sought ways to improve technology, energy consumption, and emissions standards. The policy gained national attention after President Xi reiterated its importance in early 2024, turning it into an official action plan.
How Does it Work?
Professor Bai Quan, a director at the Academy of Macroeconomic Research, outlined the four key elements of the policy:
1. Upgrading industrial equipment: This includes replacing outdated boilers, turbines, heat pumps, and lighting used in manufacturing with more energy-efficient models.
2. Consumer goods trade-in: Old, inefficient household appliances like fridges and air conditioners will be eligible for trade-in programs, encouraging consumers to swap them for newer, more energy-efficient models.
3. Recycling: The policy promotes the recycling of high-emission items, ensuring that older products are disposed of responsibly and reused wherever possible.
4. Improving product standards: New efficiency and emissions standards will prevent consumers from replacing old equipment with low-efficiency models, ensuring that replacements are genuinely more sustainable.
To support this transition, the government is offering subsidies to both manufacturers and consumers, making it easier to trade in old items for newer, more efficient alternatives. Additionally, recyclers are receiving financial and tax incentives to help improve recycling rates.
What's New in 2025?
In 2025, the "Two New" policy is expanding further. Here are some key updates:
-Increased funding: The government has allocated more resources to help consumers and businesses take advantage of the trade-in programs.
-Expanded trade-in options: The list of eligible items has grown, with older petrol cars now included in the trade-in scheme.
-Detailed trade-in standards: By the end of the year, China will introduce a more detailed set of guidelines covering 294 trade-in items, ensuring greater clarity and consistency across the program.
Li Gang, an official from the Ministry of Commerce, emphasized that all businesses, whether domestic or foreign, private or state-owned, are invited to participate. This broad inclusion is designed to stimulate consumer spending and invigorate the economy.
Why Does It Matter?
The "Two New" policy is part of China's strategy to boost domestic demand while simultaneously addressing environmental concerns. With the economy showing signs of slowing, the government hopes this policy will stimulate consumption, particularly by encouraging people to replace outdated products with more efficient alternatives. The focus on emissions reductions also aligns with China's broader environmental goals, making the policy an important piece of the country's economic and sustainability strategy.
The full impact of the policy remains to be seen, but if successful, it could offer a model for other nations seeking to balance economic growth with the urgent need to reduce carbon emissions. By modernizing industries and encouraging greener consumer habits, China is making significant strides toward a cleaner, more efficient future.
How Does the Equipment Upgrade Mechanism Work?
A key feature of the "Two New" policy is the provision of subsidies that allow both consumers and businesses to trade in old, inefficient goods for newer, more energy-efficient models. This process helps reduce emissions and boosts domestic demand.
For instance, under the policy, a consumer can trade in an old petrol car for a subsidy to purchase a new electric vehicle (EV), significantly lowering the vehicle's carbon footprint. Similarly, businesses can upgrade large-scale equipment such as boilers and turbines, improving their energy efficiency.
In 2025, China's government plans to issue 300 billion yuan (about US$41 billion) in ultra-long special treasury bonds to support consumer goods trade-in programs. Additionally, 700 billion yuan (US$96 billion) will be allocated to support infrastructure projects, including roads and railways.
Consumers can expect financial incentives for recycling high-emission goods such as trucks, ships, and buses, depending on the age and emission levels of the equipment. The government is also providing discounts for the purchase of lower-emission replacements.
Moreover, businesses can apply for low-interest loans to help finance large-scale equipment upgrades. These loans are especially helpful for small and medium-sized enterprises (SMEs), as the rules for accessing these funds have been relaxed to improve accessibility.
How Does "Two New" Support Recycling?
As the world's largest producer of renewable energy, China has a significant task ahead of it: recycling decommissioned renewable energy equipment. By 2030, around 35 million tonnes of waste from retired wind and solar equipment will need to be recycled in the country. According to a research paper in Waste Management, building up sufficient recycling capacity could provide substantial economic benefits.
In 2024, China established China Resources Recycling Group, a state-owned company tasked with handling scrap steel, EV batteries, and decommissioned renewable energy equipment. Despite this, private recyclers still face challenges, particularly around the issue of missing "first receipts"—the purchase invoices needed to claim value-added tax deductions.
A 2024 policy change now allows qualified recyclers to use purchasing invoices instead of "first receipts" for tax claims, which is a significant incentive for meeting the 2027 goals of the "Two New" policy. By 2027, the policy aims to increase investment in new equipment by 25% and double the share of recycled cars.
How Does the Trade-in System Work Under "Two New"?
The trade-in aspect of the "Two New" policy builds on past initiatives to stimulate consumption and address oversupply issues. Starting in 2025, the policy will expand the range of eligible trade-in goods from eight to twelve categories. This includes commonly used items like mobile phones and fridges, with subsidies of up to 500 yuan (US$70) for new digital products.
Electric vehicles (EVs) will remain a key focus, as they play a significant role in decarbonizing road transport. The government has also extended subsidies for scrapping older petrol cars, now including those registered between 2012-2014, instead of just 2011-2013 models.
Li Shuo, Director of China Climate Hub at the Asia Society Policy Institute, notes that this expansion underscores China's rapid industrial upgrades and the synergies between industrial productivity, regulatory frameworks, and the size of the market. The "cash-for-clunkers" program, which has already boosted EV sales, is expected to continue driving growth in the electric vehicle sector.
Subsidies for EVs, plug-in hybrids, and smaller petrol cars remain generous, with buyers eligible for up to 20,000 yuan (US$2,730) for EVs and up to 15,000 yuan (US$2,073) for petrol cars with engines smaller than 2 litres.
What Has Been the Impact So Far?
The trade-in program has already had a noticeable impact on the market. According to Xinhua, sales of new cars surged in 2024, with new energy vehicles (NEVs), which include EVs and plug-in hybrids, accounting for over 60% of all cars purchased under the initiative. Similarly, more than 90% of sales revenue from the home appliance trade-in program came from products certified with the highest energy-efficiency ratings.
An analysis by Goldman Sachs predicts that subsidies under the "Two New" policy will help increase the share of NEVs in Chinese car sales from 48% in 2024 to 60% in 2025. The 90 billion yuan (US$12 billion) allocated to EV subsidies represents about 60% of the total funds for trade-ins.
Despite these positive outcomes, some analysts caution that the trade-in program may have limited impact on overall economic growth. According to Lauri Myllyvirta of the Centre for Research on Energy and Clean Air (CREA), while the policy stimulates spending on energy-intensive goods, it doesn't address less energy-intensive sectors, such as services.
Looking Ahead
The full impact of the "Two New" policy will become clearer as more specifics are rolled out in 2025. Lynn Song, Chief Economist for Greater China at ING, believes that while the 300 billion yuan budget may seem modest compared to total retail sales, the policy will lead to a significant boost in demand, especially for automobiles and home appliances.
The "Two New" policy represents a strategic effort by the Chinese government to stimulate lower-carbon consumption, modernize key industries, and support the green transition. As the program evolves, it holds the potential to drive significant progress toward China's environmental and economic goals, contributing to a greener, more sustainable future.