China on reports of "national subsidy" suspension: Remaining funds to be distributed smoothly

China on reports of "national subsidy" suspension: Remaining funds to be distributed smoothly

In response to recent reports of a suspension in national subsidies, the Chinese government has reassured investors and financial professionals that the remaining funds will be distributed smoothly. The high-level meeting held in April emphasized the urgency of implementing proactive and effective macroeconomic policies, including fiscal and monetary measures to stimulate economic growth [1].

The National Development and Reform Commission (NDRC) has clarified that efforts will be strengthened to ensure effective policy implementation. This includes special actions to boost consumption and the use of 5 trillion yuan ($685 billion) in national-level investment funds in 2025. Additionally, the NDRC has encouraged companies to stabilize employment and expand employment programs such as work-for-relief [1].

The People's Bank of China (PBC) has indicated that monetary policy will continue to release long-term liquidity through measures such as reserve requirement ratio cuts and interest rate cuts, reducing financing costs for the real economy. Fiscal policy will also expand the old-for-new subsidy project and consider extending it to the service sector to unleash service consumption potential [1].

The government has acknowledged the need to improve the business environment for private enterprises and platform companies. The success of DeepSeek, a private enterprise, validates the creativity and resilience of China's private sector. However, market access restrictions and difficulties in listing remain challenges that need to be addressed [1].

In expanding consumption, the old-for-new project primarily uses ultra-long-term special government bonds for purchase subsidies, but interest subsidies for trade-in loans are also being considered. The PBC has arranged 500 billion yuan in innovation and technology transformation refinancing loans for this purpose [1].

The government is also focusing on stabilizing foreign trade. Structural tools are being developed to guide banks in increasing loan support to foreign trade micro and small-sized enterprises affected by external factors [1].

The government has recognized the potential for service consumption and the need to improve pension and social security. The consumption structure gap between China and the US is significant, with China's service consumption accounting for only 17.9% of GDP compared to the US's 45.8% [1]. Improving public services for rural residents and accelerating hukou reform could further unleash rural residents' consumption potential [1].

In conclusion, while there have been reports of a suspension in national subsidies, the Chinese government has assured that the remaining funds will be distributed smoothly. The focus is on implementing proactive macroeconomic policies, improving the business environment for private enterprises, expanding consumption, and stabilizing foreign trade. The government is also committed to improving public services and addressing the consumption structure gap between China and the US [1].

References:
[1] https://www.chinadaily.com.cn/a/202506/16/WS684f7a36a310a04af22c674c.html