The Chinese government plans to double the subsidy it offers to buyers of new battery electric vehicles (BEVs) who scrap their old vehicles to stimulate flagging domestic sales, according to local reports citing a circular published by the Ministry of Finance.

In April, the government announced it would offer a subsidy of CNY10,000 (US$1,380) to BEV buyers trading in their old internal combustion engine (ICE) vehicles. It has now decided it needs to double this amount to CNY20,000 to ensure the market continues to grow.

The move is designed to address growing consumer concerns over falling prices, resulting from fast rising competition and heavy discounting by automakers and dealers. With battery and software technologies advancing rapidly, there is also growing concern over residual values of BEVs.

The circular published by the central government stated: “All regional governments are encouraged to support vehicle purchase for replacement purposes. As consumers scrap their used vehicles, measures should be taken to support purchases of new vehicles."

Chinese GDP growth slowed to 4.7% year on year in the second quarter of 2024 from 5.1% in the first quarter, reflecting weak consumer sentiment as the country’s property sector struggled to recover after several years of decline. Exports are also coming under increased pressure from trade frictions with the US and Europe.

According to the China Passenger Car Association (CPCA), retail sales of passenger vehicles in the country fell 7% to 1.77m units in June while first half sales were up 3% at 9.841m units - underpinned by strong growth in new energy vehicle sales earlier in the year while sales of traditional internal combustion engine (ICE) vehicles continued to plunge.