Some Chinese Cities Halt Massive Subsidy Trade Amid Abuse Concerns

China’s automotive market has experienced significant growth in recent years, largely fueled by generous government subsidies aimed at encouraging consumers to replace old cars with newer, more efficient, and environmentally friendly models. However, some major Chinese cities have recently suspended their vehicle replacement subsidy programs after investigations revealed fraudulent practices by some dealers who sold brand-new cars as “used with zero kilometers” to illegally claim subsidies intended for used car replacements.

Background of Government Subsidies in China

China is the world’s largest car market and relies heavily on government incentives to stimulate demand, especially amid economic challenges. In 2025, the Chinese government launched a vehicle replacement subsidy program allowing consumers to receive financial grants when trading in old cars for new ones, aiming to boost new car sales, support electric and hybrid vehicle adoption, and reduce harmful emissions.

Over 4 million people applied for the subsidy this year, reflecting strong demand. The government pledged to continue funding the program throughout 2025 to stabilize the market and encourage new car purchases.

Abuse of Subsidies by Dealers

Despite the program’s noble goals, some cities uncovered abuse by dealers seeking quick profits. These dealers sold new cars labeled as “used with zero kilometers,” enabling them to claim subsidies meant exclusively for used car replacements.

This fraudulent practice helped dealers quickly clear inventory but rapidly depleted government subsidy funds, raising concerns among local authorities. Some dealers misrepresented new cars as eligible used vehicles to qualify for financial support.

Suspension of Subsidies in Several Cities

In response, several Chinese cities, including Zhengzhou and Luoyang, temporarily suspended their subsidy programs due to exhaustion of central government funds. Other cities like Xinjiang, Chongqing, and Shenyang followed suit, signaling growing worries about the sustainability of the subsidy programs amid abuse.

Originally intended to stimulate consumer spending amid economic headwinds, the abuse has complicated continued funding at previous levels.

Impact on Retail Sales and Local Economy

Reports indicate that subsidy programs, not only in automotive but also in electronics and home appliances, contributed to a 6.4% growth in local retail sales in May alone. This growth underscores the importance of government support in boosting the local economy.

However, ongoing abuse threatens these gains if subsidy programs are halted or significantly reduced.

Government Position

China’s National Development and Reform Commission and Ministry of Finance confirmed that the vehicle replacement subsidy program will continue throughout 2025, though no specific dates for new central government funding releases have been announced. This stance reflects a commitment to support the market while emphasizing the need for better oversight to prevent abuse and ensure funds reach genuine beneficiaries.

What This Means for Consumers

For Chinese consumers, subsidy suspensions in some cities may lead to higher new car prices due to reduced financial incentives. Consumers should also be cautious of suspicious offers that may be part of deceptive sales practices.

Future Challenges and Proposed Solutions

China faces the challenge of balancing market support with protecting consumers from illegal practices. Proposed solutions include:

• Enhancing oversight of vehicle sales to verify new vs. used status.
  
  

• Imposing strict penalties on dealers abusing subsidies.
  
  

• Improving funding distribution mechanisms to ensure program sustainability.
  
  

• Educating consumers to buy from trustworthy sources.
  

  The suspension of vehicle replacement subsidies in some Chinese cities highlights the challenges of managing government support programs aimed at stimulating the economy and protecting the environment. While these programs have boosted car sales and spending, abuse threatens their sustainability and consumer confidence.

The Chinese government must take firm action to ensure subsidies reach legitimate consumers while maintaining market transparency and price stability. Meanwhile, consumers should remain vigilant and informed to safeguard their rights.