China's policy to boost demand by $700 billion will have a 'bigger and bigger' impact, official says

BEIJING — China's latest policy to boost demand will soon have a greater effect on growth, a top official at the economic planning agency told reporters Thursday.

Amid international concerns about oversupply in China and slower growth, Beijing earlier this year announced plans to bolster domestic demand with subsidies and other incentives for equipment upgrades and consumer product trade-ins.

That's officially expected to create well over 5 trillion yuan ($704.23 billion) in annual spending on equipment, and unspecified "trillions" for consumer goods such as cars and home appliances.

Implementation is already underway, said Zhao Chenxin, deputy head of the National Development and Reform Commission.

"We believe this work will achieve bigger and bigger results," he said in Mandarin, translated by CNBC.

China has set a GDP target of around 5% this year, after an increase of 5.2% last year. Analysts have been skeptical the country can reach its goal without additional stimulus. But this week Goldman Sachs and Morgan Stanley raised their forecasts closer to the official target, partly due to growth in manufacturing.

Beijing aims to increase investment in equipment by more than 25% between 2023 and 2027, Zhao said.

That translates into about 0.5 percentage points in added GDP a year, according to Bruce Pang, chief economist and head of research for Greater China at JLL. He noted that equipment upgrades account for 9% to 10% of total GDP.

Other goals for 2027 include improving the energy efficiency of major energy-consuming equipment, roughly double the volume of recycled cars, increase the transaction volume of secondhand cars by 45% and increase the recycling volume of home appliances by 30%, Zhao said.

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