Beijing is subsidizing everything from microwaves to dishwashers to get people to spend more money

• China has expanded its trade-in program to boost consumer spending on home appliances.
• The program, launched in March, includes subsidies and has shown positive results.
• China faces economic challenges including deflation fears and low consumer demand.

China’s cautious consumers are spending less, prompting Beijing to dish out incentives even for small home goods.

On Wednesday, China added home appliances, including microwave ovens, water purifiers, dishwashers, and rice cookers, in a trade-in program designed to spur demand.

The program, which was first rolled out in March, already included bigger appliances like refrigerators, washing machines, TV sets, and air conditioners. The Chinese government subsidizes up to 20% of the price of a new appliance.

The Chinese government, which had allocated 81 billion yuan, or $11 billion, for the trade-in program, said on Wednesday that the program had yielded positive results.

Li Gang, a Chinese commerce ministry official, said at a press conference on Wednesday that the trade-in program resulted in 920 billion yuan worth of auto sales and 240 billion yuan worth of home appliances sales last year.

China is trying to boost consumption in the world’s second-largest economy, which is beset by multiple challenges including a property crisis and high youth unemployment.

China deflation fears

Economists are especially worried about a deflation spiral, which would result in a vicious cycle of dampened consumer demand and lower prices.

Official inflation data released on Thursday gave little cheer, with China’s consumer price index last year inching up just 0.2% from a year ago.

In December, China’s CPI edged up just 0.1% more than a year ago in its fourth straight month of decline, with food price declines dragging inflation down. In comparison, November CPI was 0.2% higher than a year ago.

The headline inflation figure did not fall into deflation territory thanks to non-food inflation — which edged up 0.2%.

However, the data about non-food prices “does not inspire too much confidence in an uptick of consumption yet,” wrote Lynn Song, the chief economist for Greater China at ING, on Thursday.

Prices of clothing, education, and healthcare moved up in December.

However, prices of transportation, communications, daily use goods, and rent were in the deflationary zone.

Factory gate prices were in deflation for the 27th straight month.

Analysts generally expect China’s inflation data to pick up this month thanks to seasonal factors as Chinese New Year, which starts on January 29.

However, official data about wholesale farm product prices in China so far this month point to food prices being “subdued and weaker than traditional seasonality suggests,” wrote Nomura economists on Thursday.