The narrowing of subsidies has yet to suppress buying, and instead consumers are gravitating towards products that offer more value-added features like AI capabilities

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China's national consumer subsidy policy is heading into a new cycle in 2026. An initial allocation of 62.5 billion yuan ($9.1 billion) was smoothly channeled to retail terminals across the country at the start of this year, though coverage under the policy has narrowed notably. Nevertheless, during the peak Lunar New Year consumption season, purchases of 3C electronics and major home appliances remained active, with a noticeable shift in consumer preferences towards mid- to high-end products.

At the same time, supply-side pressures have mounted as rising raw material costs led to price adjustments for several home appliance categories. The combined dynamics of policy adjustments and evolving consumer behavior are adding notable new trends to China's 3C electronics and home appliance markets.

From broad stimulus to selective upgrades

The first round of subsidies for 2026 was distributed ahead of the Lunar New Year holiday. Notably, this round broadly covered a diverse range of 3C products, including mobile phones, tablets, and smart wearables from mainstream brands such as Huawei, Xiaomi (1810.HK) and Apple (AAPL.US). The policy adjusted the subsidy rate to 15% with a per-item cap of 500 yuan, and applied only to products priced below 6,000 yuan. It also imposed quantity and monetary limits on subsidies for certain home appliances, while removing multiple kitchen appliance subcategories. This narrowing of covered categories aims to create a buffer for smoother future phase-outs.

The narrower coverage hasn't cooled market enthusiasm. In the first month after the new policy's rollout, Suning.com, China's premier electronics and home appliance retailer, saw a remarkable jump in purchasing of major appliances. Sales of air conditioners, refrigerators, washing machines and TVs all surged by over 90% month-on-month. Mid- to high-end smartphones emerged as the primary consumption focus within the 3C category, while purchasing power for emerging tech products like tablets and smart wristbands rose sharply. These figures show the policy adjustments have not dampened demand, but rather spurred more concentrated purchasing within subsidy parameters.

Chasing quality

Crucially, the ongoing rewriting of policy incentives is reshaping consumer logic. In China's 3C and home appliance markets, consumers are accelerating their shift from basic renewal to proactive upgrades for superior quality. Consumers are showing growing interest in larger appliances, with ultra-large refrigerators exceeding 550 liters and giant-screen TVs over 85 inches becoming top choices for replacing older models. Meanwhile, demand is surging for appliances and 3C products that enhance efficiency and assist in scenarios like reducing household chores, hosting gatherings, and tech gifting. Among these, certain categories like voice-controlled air conditioners, microwave-steam oven combinations, and superior AI imaging smartphones are particularly popular.

It's interesting to note that the subsidy cap has actually spurred new consumer behavior, with buyers seeking the most powerful configurations possible within the 6,000 yuan limit. This mindset has fueled a substantial rise in sales of mid- to high-end models, with devices priced between 3,500 and 6,000 yuan now accounting for over 70% of sales, bringing them into the mainstream. The Huawei Mate 80 standard edition, precisely positioned within the subsidy range, has been consistently sold out, while the higher-tier Pro series, excluded from subsidies due to its price, has experienced a starkly different sales trajectory.

But strong demand hasn't addressed underlying concerns on the supply side. Since 2025, prices for commodities like copper and aluminum, as well as memory chips, have continued to climb, with this cost pressure being passed down to the retail end.

The market has responded with comprehensive price adjustments, with minor price tweaks already appearing in certain kitchen appliance categories such as ovens. Similarly, Aux Electric (2580.HK), a leading brand in air conditioning, has confirmed a 6% to 10% price hike starting in March. Similarly, the Xiaomi 17 Ultra, released in late 2025, saw its launch price raised due to rising memory costs. To balance costs and profits, top manufacturers are increasingly channeling R&D and production resources toward high-performance, high-margin products. AI-powered features, for instance, are being prioritized for mid- to high-end models.

Enduring mark of temporary policy

The deeper significance of the ongoing national subsidy policy lies not only in stimulating short-term sales, but also in creating momentum for industrial upgrades. Data indicates consumer willingness to pay for cutting-edge technologies is gradually moving beyond mere subsidy dependency. A growing number of consumers are seeking full-feature functions and opting for top-tier home appliances in a single purchase.

Since implementation of the subsidy program's latest round, sales of home appliances equipped with on-device AI capabilities have approached 60% of the total. Highly intelligent products, such as TVs powered by large language models (LLMs), washing machines capable of identifying different fabric types, air conditioners with active temperature control, and refrigerators featuring automatic freshness preservation, are becoming increasingly prominent and are becoming sales leaders within their categories.

However, it's worth noting that as subsidy policies become more routine, their stimulating effects will inevitably diminish. As this round of home appliance and electronics renewals nears its end, the underlying slump in consumption will inevitably resurface. Therefore, the true path forward for enterprises lies in proactive industrial upgrades. This involves identifying and targeting specific market segments, and developing sophisticated operational strategies to secure user loyalty. Within this context, a pathway with good potential is leveraging an "AI + home appliance" strategy to drive product innovation to deliver greater application value across a diverse range of consumer scenarios.

Looking forward, the national subsidy policy will remain the most direct tool for lifting consumer spending in the short term. The narrowing of subsidies has yet to suppress spending, and instead consumers are gravitating towards products within program guidelines that offer higher specifications, longer lifecycles, and better solutions to pain points. This provides a key signal that Chinese consumers are increasingly willing to pay for advanced technology.

Nonetheless, the marginal benefits of the national subsidy policy are diminishing. Therefore, an immediate priority for businesses should be shifting their focus from promotional discounts to developing higher-value products and refining their operational strategies. National subsidies will eventually be phased out. But they have played a powerful role in driving a technology-led value reconstruction within China's 3C and home appliance markets, and in pushing consumer mindsets toward larger products with more advanced features.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.