Core Viewpoint
On December 30, 2025, the &#34;2026 Implementation of Large-Scale Equipment Update and Consumer Goods Trade-In Policy&#34; was announced, clearly stating that &#34;the first batch of 62.5 billion yuan of ultra-long-term special government bond funds has been allocated to localities in advance for supporting the trade-in of consumer goods.&#34; If we linearly extrapolate this first batch amount on a quarterly basis, the annual subsidy for consumer goods trade-in in 2026 is expected to be around 250 billion yuan, which is lower than in 2025; if we refer to the experience ratio where the first batch advance allocation accounts for about 27% of the annual scale under the strong push in 2025, the total scale will be less than 250 billion yuan. We expect that the ultra-long-term special government bonds will maintain a scale of around 1.2 trillion yuan, continuing to focus on &#34;two heavy&#34; and &#34;two new.&#34; If there is a retreat in the &#34;two new&#34; areas, there may be a possibility of an increase in the &#34;two heavy&#34; areas to actively expand effective investment.
From the content of this policy, the trade-in of consumer goods in the &#34;two new&#34; areas in 2026 still mainly anchors on commodity consumption, which means that the market's earlier expectations for expanding trade-ins to service consumption have not been fully reflected in this round of subsidy framework. We suggest that there may be two incremental directions for future service consumption policies: one is to expand trade-ins to service scenarios, and the other is to allocate some funds specifically for subsidies to service consumption. However, we maintain our previous view that the key to service consumption still lies in high-quality supply, and demand-side subsidies are more of a supporting role. Even if service subsidies are introduced, they are expected to be primarily pilot programs with structural support, and the intensity and scale are likely to be lower than commodity subsidies. On the other hand, in conjunction with this, we expect that restrictive measures are likely to be steadily relaxed and optimized, mainly focusing on the automotive, housing sectors, and some new consumption areas. In addition, the policy tone in the equipment update sector continues, and fixed asset investment &#34;opening red&#34; focuses on policy financial tools.
Based on the above judgments, in terms of major asset classes, in the equity market, we expect that under liquidity-driven conditions, A-shares will continue to strengthen in 2026, with a structural market characterized by low volatility dividends and technological growth, and the export chain benefiting from improved external demand also presents opportunities. In the bond market, we expect the yield on 10-year government bonds to fluctuate widely in the range of 1.5-2%.
<h2>The Advance Allocation of Consumer Goods Trade-In Subsidies Decreases Year-on-Year</h2>
To optimize the implementation of the &#34;two new&#34; policies, ensure smooth cross-year transitions, and cover peak consumption demands during New Year's Day and the Spring Festival, the National Development and Reform Commission, in conjunction with the Ministry of Finance, has allocated the first batch of 62.5 billion yuan of ultra-long-term special government bond funds to localities in advance to support the trade-in of consumer goods.
In terms of rhythm, we believe that this advance allocation helps fill the policy gap. Considering that the policy release point is before the Two Sessions, the advance funds are mainly used to cover the cross-year transition phase, lasting approximately one quarter, to avoid policy interruptions and stabilize terminal consumption expectations.
However, in terms of intensity, the subsidy for trade-ins in 2026 may be weaker than last year. If we refer to the experience ratio where the first batch advance allocation accounts for about 27% of the annual scale in 2025 (the first batch allocation was 81 billion, with a quarterly allocation ratio of 810/3000=27%), and linearly extrapolate this first batch amount on a quarterly basis, the annual subsidy for consumer goods trade-in in 2026 is expected to be around 250 billion yuan, which is lower than in 2025. If we compare it to last year's 27% strong push rhythm, the total scale will be less than 250 billion yuan
It should be emphasized that the above is based on rhythmic deductions, and the final outcome still depends on the subsequent batch orders and the overall arrangement for the year.
In our earlier report &#34;Counter-Cyclical and Cross-Cyclical Combined Efforts - Signals Conveyed by the December Politburo Meeting,&#34; we indicated that the scale of ultra-long-term special government bonds may remain around 1.2 trillion, continuously focusing on &#34;two 重&#34; and &#34;two 新.&#34; If there is a decline in the &#34;two 新&#34; areas for ultra-long-term special government bonds, the possibility of an increase in the &#34;two 重&#34; areas cannot be ruled out, actively expanding effective investment.
From December 12 to 13, the National Development and Reform Work Conference pointed out that multiple measures should be taken to promote investment stabilization. Fully leverage the role of &#34;two 重&#34; construction, newly issued local government special bonds, and various types of government investment funds, and appropriately increase the scale of central budget investment. The National Financial Work Conference indicated that the top priority for fiscal work in 2026 is to adhere to domestic demand as the main driver and support the construction of a strong domestic market. Vigorously boost consumption and deeply implement special actions to stimulate consumption. Actively expand effective investment and increase investment in key areas such as new productive forces and comprehensive human development.
<h2>What changes are there in the focus of consumer subsidies in 2026?</h2>
In 2026, consumer product subsidies will shift from broad-based benefits to focusing on main categories + raising green thresholds + strengthening unified standards. The subsidy scope is clearly locked in three main tracks: automobile scrapping and replacement + six categories of home appliances + four categories of digital and smart products, while other categories will reflect more local autonomous arrangements within the framework.
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In the automotive sector, the subsidy cap remains unchanged, but it shifts from a fixed amount to a price ratio with a ceiling, resulting in a decrease in the implicit subsidy rate for high-priced vehicles, with subsidies more inclined towards mainstream price segments. In 2025, the automobile scrapping and replacement subsidy was fixed, with new energy vehicles at 20,000 yuan and 1.5 million yuan for fuel vehicles of 2.0L and below; the replacement subsidy only stipulated &#34;not exceeding 15,000/13,000,&#34; with details to be formulated by local authorities based on actual conditions. In 2026, a unified national standard will be established, and while maintaining the cap, it will shift to a price ratio subsidy, namely 12% for scrapping and replacing new energy vehicles (capped at 20,000), and 10% for fuel vehicles (capped at 15,000); for replacement, 8% for new energy vehicles (capped at 15,000) and 6% for fuel vehicles (capped at 13,000). After the adjustment of the subsidy mechanism, the implicit subsidy rate for high-priced models decreases, which is more beneficial for directing fiscal resources towards a broader coverage of mainstream price segments, while also reducing the marginal efficiency loss caused by a one-size-fits-all fixed amount.
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In the home appliance sector, the subsidy range has shifted from 12 categories + tiered increases to 6 categories + only subsidizing 1 level, with subsidies emphasizing green orientation and fiscal constraints, and the subsidy ratio and cap have converged. In 2025, the subsidy range covered 12 categories of home appliances, with tier 2 subsidizing 15% and tier 1 subsidizing 20%; the cap per item was 2,000 yuan (with a maximum of 3 air conditioners). In 2026, the nationally unified subsidy range will focus on 6 categories (refrigerators/washing machines/TVs/air conditioners/computers/water heaters), and only products with 1-level energy efficiency or water efficiency will be subsidized; the subsidy ratio will be unified at 15%, with a cap of 1,500 yuan per item, and one item per category. Overall, the policy goal of home appliance subsidies has shifted from expanding categories to emphasizing energy efficiency, guiding structural upgrades with higher green thresholds, while also converging on subsidy ratios and caps
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In the digital and smart sectors, the expansion from three categories of digital products to four categories + smart products further encourages intelligence, with core subsidy intensity continuing. In 2025, for 3C products (including mobile phones, tablets, smartwatches, and wristbands), the single sale price ≤ 6000 yuan, with a subsidy of 15% and a cap of 500 yuan per item. In 2026, it will expand to four categories (including smart glasses based on the previous foundation), with the subsidy standard remaining at 15% and the cap unchanged at 500 yuan; at the same time, support for new subsidies for smart home products (including those suitable for the elderly) will be proposed, with local governments independently formulating categories and standards. Digital subsidies will emphasize the extension of intelligence, such as the addition of smart glasses and the introduction of smart home directions, but the fiscal intensity will remain stable.
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For other categories, starting from 2025, it will be clearly proposed and promoted, adjusted to allow local governments to independently expand within the framework. In 2025, it will be clearly proposed to support the replacement of home decoration consumer goods and the trade-in of electric bicycles, with subsidy categories and standards largely determined by local conditions. In 2026, under the background of a unified national subsidy standard, it will be clearly locked in for vehicle scrapping and replacement + six categories of home appliances + four categories of digital and smart products; at the same time, it emphasizes giving local governments more autonomy, allowing them to independently determine subsidy categories and standards within the framework.
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<h2>The focus of service consumption remains on quality supply</h2>
From the content of this policy, the old-for-new exchange for consumer goods in the two new categories in 2026 still primarily anchors on commodity consumption, which means that the market's earlier expectations for expanding the old-for-new exchange to service consumption have not been fully reflected in this round of subsidy framework.
We previously emphasized in our external report &#34;How to Improve Resident Consumption Rate&#34; that consumption is both a demand issue and a supply issue. The policy focus of service consumption remains on quality supply rather than demand-side subsidies, and this viewpoint continues to be validated. Insufficient service supply, structural imbalance, and low quality will suppress the upper limit of the consumption rate. Even if residents' employment improves, income increases, and expectations stabilize, consumption will be difficult to fully release, and more will flow out through savings, overseas consumption, or asset allocation. Only by using service consumption as a breakthrough, improving supply quality, and transforming traditional demand stimulus policies into supply-oriented ones, effectively guiding fiscal and financial resources to enterprises that can create high-quality products and services, can a closed loop of &#34;quality supply - stable employment - income increase - consumption expansion&#34; be formed, thereby raising the medium- to long-term upper limit of resident consumption rates. Furthermore, from the analysis of quantitative indicators in several typical service areas such as sports (per capita sports venue area), culture (number of museums per million people), reading (number of public library service visits per household), and elderly care (number of elderly care institution beds per thousand elderly people), there is still a significant gap between China and developed economies, and these gaps are precisely the directions where future service supply can be significantly improved.
We also note that subsequent service consumption policies may have two incremental directions: one is to expand the old-for-new exchange to service scenarios, and the other is to allocate some funds specifically for subsidies to the service industry. However, we maintain the view that the key to service consumption still lies in quality supply, and demand-side subsidies play a more supportive role. Even if service subsidies are introduced, they are expected to be primarily pilot programs and structural support, with the intensity and scale likely lower than that of commodity subsidies
<h2>The Equipment Update Policy Continues, Fixed Asset Investment &#34;Opens with a Bang&#34; Focus on Policy Financial Tools</h2>
The &#34;Action Plan&#34; does not mention the early issuance of scale and annual support scale in promoting large-scale equipment updates, consistent with last year, with the overall expression for 2026 continuing the tone of the Central Economic Work Conference, namely &#34;optimizing the implementation of the two new policies.&#34; Comparing the contents of the two years' plans, we believe that the core of the 2025 policy is to increase efforts and expand coverage, while the 2026 policy is to optimize and fill gaps.
In terms of supported areas, the plan proposes that in 2026, in addition to continuing support for existing fields such as industry, electronic information, energy and electricity, old residential elevators, energy conservation and carbon reduction, environmental protection, old operating trucks, new energy city buses, and old agricultural machinery, the support scope will also include the installation of elevators in old communities, elderly care institutions, fire rescue facilities, inspection and testing, etc., focusing more on people's livelihood, safety, and consumer infrastructure. In terms of policy implementation, the plan states that in 2026, the application conditions and review processes will be optimized, the investment threshold for applying for equipment update projects will be lowered, support for equipment updates for small and medium-sized enterprises will be increased, and the policy's coverage will be expanded, while emphasizing precise drip irrigation and avoiding resource waste.
Looking back, the large-scale equipment update policy has achieved significant results in recent years. Although fixed asset investment in the second half of 2025 is under significant pressure (cumulative year-on-year -2.6% from January to November), the purchase of equipment and tools (cumulative year-on-year +12.2% from January to November) remains a core support item for investment driven by policy. In the first three quarters of 2025, investment in the purchase of equipment and tools increased by 14% year-on-year, driving overall investment growth by 2 percentage points. The investment subsidy funds supported by the ultra-long-term special government bonds for equipment updates have supported about 8,400 projects, driving total investment over 1 trillion yuan, with a significant policy multiplier effect.
Looking ahead to 2026, in addition to the support from ultra-long-term special government bonds, the 500 billion policy financial tools will still be an important tool to stabilize the decline in manufacturing and overall fixed asset investment. At the end of October 2025, the National Development and Reform Commission pointed out that new policy financial tools supported more than 2,300 projects, with a total project investment of about 7 trillion yuan. In terms of direction, new policy financial tools are directed at many fields, not only traditional infrastructure projects but also focusing on digital economy, artificial intelligence, consumer infrastructure, etc., with a considerable proportion, with the proportions directed at manufacturing and broad infrastructure being about 40% and 60%, respectively. The official accounts of the China Development Bank, Agricultural Development Bank, and Export-Import Bank also have similar statements. From the progress of supported projects, considering that the funding from the tools will be fully allocated by the end of October 2025, some projects may face winter construction issues, and such projects may be reserved for continued construction in 2026, with the expected physical workload to be concentrated in early next year, making it promising to predict a strong start for investment growth and supporting credit scale in Q1 2026.
Source: Zheshang Securities

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Zheshang Securities stated that the annual quota for the old-for-new subsidy for consumer goods in 2026 is approximately 250 billion yuan, lower than in 2025; the consumer goods subsidy in 2026 will shift from broadening the scope to focusing on main categories + raising green thresholds + strengthening unified standards, with the subsidy scope clearly locked in on three main tracks: automobile scrapping and replacement + 6 categories of home appliances + 4 categories of digital and smart products

- The Chinese government has initiated a policy for 2026 to support the renewal of consumer goods with an initial allocation of 625 billion yuan from special bonds, indicating a reduced subsidy compared to 2025.  
- The focus remains on product consumption, with significant adjustments in subsidy structures for automobiles and home appliances, emphasizing higher energy standards.  
- Overall, while additional funds may enhance support for service consumption in the future, the policy primarily targets quality supply rather than demand-side subsidies.

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