The recent implementation of subsidies for the purchase of digital products such as smartphones, tablets, and smartwatches marks a significant development in China’s consumer policy for 2025. As the new year approaches, phones have emerged as the leading product for consumers looking to upgrade during the festive season.

Across the nation, the hotly debated trade-in program for consumer goods has seen a remarkable surge in mobile phone sales, with revenues skyrocketing roughly 182% compared to the previous yearInitial data reveals that during the Spring Festival alone, sales of smartphones, tablets, and other digital products exceeded 4.5 million units, which accounted for an impressive 45% of the total sales from the trade-in initiativeNotably, reports from e-commerce platforms indicate that nearly 70% of sales during this period were attributed to mobile phones eligible for the subsidy.

In an interview with reporters, Canalys research analyst Zhong Xiaolei remarked on the positive market performance in the first week following the rollout of the national subsidiesHe noted a pronounced demand for smartphones priced in the ¥3000-¥4000 range, essentially indicating that consumers in this segment found the government’s incentive particularly appealing.

However, beneath these seeming benefits lies a competitive landscape that has intensified among smartphones priced below ¥6000. Retailers have been challenged by eligibility criteria and additional hurdles, raising concerns about the sustainability of these policy benefitsCounterpoint senior analyst Mengmeng Zhang has pointed out that the week after the Spring Festival will serve as a critical observation periodWhile short-term sales may benefit from the new subsidy, long-term growth is expected to grapple with a sluggish economic environment, high smartphone prices, extended upgrade cycles, and the potential diminishing effects of the subsidies.

The introduction of the state-sponsored subsidy on January 20, allowing for discounts of up to 15% or ¥500 for eligible devices, has positioned electronics like smartphones and tablets as the new favorite "lunar New Year gifts" for 2025.

According to data reported by China’s Ministry of Commerce, from January 20 to February 8, an astounding 20.09 million consumers applied for a total of 25.41 million instances of subsidies for smartphones and tablets

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During the Spring Festival, sales revenues for household appliances and mobile phones surged by 166% and 182%, respectively, cementing the new status of smartphones as essential goods for the celebratory season.

Reports from JD.com revealed significant regional sales performance during the holiday season, with provinces like Hunan and Anhui showing a 100% increase in sales of subsidized phones, while other regions such as Henan and Sichuan reported gains of 50%. Additionally, various electronic devices like tablets and smartwatches also saw sales numbers rise significantly, with some categories hitting a 100% increaseSuning.com corroborated this trend, showing an overall growth of over 240% across smartphones and related digital devices during the first week of the subsidy program.

Conversely, data from third-party market research observed a remarkable greater than 50% increase in smartphone sales leading up to the Spring Festival, albeit with a subsequent decline during the holiday week itselfThis fluctuation can be attributed to the temporary closure of many brick-and-mortar stores during the festivities, limiting the availability of products to consumers.

Counterpoint's China research head, Qi Yingnan, noted that despite potential concerns over the reliability of data during the holiday weeks, the evidence suggests a positive trend in mobile phone sales both before and after the Spring Festival, supported by the new subsidy policies.

So, which price segments and brands are benefitting the most from these subsidies? The new policy stipulates that smartphones priced below ¥6000 can receive a 15% subsidy, with a maximum cap of ¥500. This means that any phone priced above ¥3333 would qualify for the full subsidy amountConsequently, the mid-range market, particularly those around ¥3400 to ¥6000, has seen substantial benefits.

For instance, insiders from JD.com reported that models within the ¥3000-¥4000 range saw considerable sales spikes

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Models such as the Xiaomi Redmi K80, OnePlus Ace 5, Vivo iQOO Neo10, and Apple iPhone 16 are highlighted as having performed exceptionally wellIn another example, mobile retail channels in Guangzhou noted a general uptick in smartphone sales during the festival, especially among devices priced between ¥3000-¥5000, with Xiaomi exhibiting notably better performance.

It’s noteworthy that the subsidy policy has made the mid-range smartphone market notably more competitive, drawing brands to lower their prices or adjust their promotional strategies in order to fit within the subsidy guidelinesFor example, some flagship Android models that originally retailed for around ¥7000 saw their prices slashed to fall below the ¥6000 thresholdA typical scenario involves the Vivo X100 Ultra 16G+512G model that, once priced at ¥7299, was reduced to ¥4999 after applying brand discounts along with the state subsidy.

Similarly, an example like the iPhone 16 with 256G of storage, originally priced at ¥6999, could be acquired for only ¥5499 after applying promotional discounts and government subsidiesThese significant discounts have prompted many in the industry to assert that the biggest beneficiaries of this subsidy scheme are primarily Android brands, while the impact on other brands remains to be seen.

However, as the policy rolls out, many physical retailers have found themselves unable to participate due to strict eligibility criteria, which creates added challengesA retailer from Henan shared that the lack of qualification for the subsidy resulted in a decline in foot traffic, compounding the pressures of increasing competition and price cutsThere is widespread agreement in the market that 2025 may usher in another intense price war.

Upon examining the short-term effects alongside the potential long-term implications, it is evident that the subsidy policies have indeed initiated a surge in overall sales during the Spring Festival, pointing to its efficacy in stimulating consumer replacement demand, particularly during such a critical shopping season

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This surge has implications for market confidence and economic growth promotion.

The vast smartphone supply chain encompasses thousands of componentsThe activation of these subsidies may, therefore, yield additional growth opportunities upstream in the supply chain as wellOpen Source Securities forecasts that demand driven by both AI smartphones and the supplementary subsidy may lead to a significant uptick in domestic smartphone sales for 2025, offering upstream component manufacturers greater elasticity in performance.

Additionally, BLU Group has indicated that the government’s inclusion of mobile devices in its trade-in plans will effectively bolster market enthusiasm, marking a ripe opportunity for growth within the consumer electronics sectorTheir preparations for the forthcoming innovation cycle reflect an awareness of the potential reshape in consumer behavior and market dynamics.

However, some supply chain insiders mentioned that the transmission of these policies from retail consumption to upstream suppliers could take additional timeCurrently, most regions will continue offering subsidies until December 31, 2025, though funding will be limited and offered on a first-come, first-served basis until exhausted.

Nonetheless, uncertainties remain about the long-term effects of these subsidiesWhile Qi Yingnan argues that the policy could facilitate the transition to AI smartphones, it should be regarded as a temporary measureDespite the immediate boost in upgrade demand, consumer habits and choices will largely depend on individual requirements and product innovations rather than external subsidies, which can only provide a fleeting advantage on the cyclical nature of the smartphone market in China.

From the perspective of supporting the smartphone industry, it is crucial for businesses to receive ongoing governmental assistance, particularly in fostering overseas market expansion and investing in research and development for AI technologies

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