Since 1978, China has undergone three major waves of equipment modernization. The first occurred at the beginning of the reform and opening-up period, with the large-scale introduction of Western equipment, which led to rapid advancements in the industrial level. The second wave followed China's accession to the World Trade Organization, where both light and heavy industries experienced a transformative upgrade of their equipment. The third wave began in 2016, with domestic enterprises gradually shifting their equipment updates towards domestically produced high-precision and advanced equipment. These three waves of equipment modernization have significantly enhanced the technological level and production efficiency of domestic industrial production.

Currently, China is in a new cycle of equipment investment, with a substantial demand for updating older equipment. The Central Economic Work Conference held at the end of 2023 and the fourth meeting of the Central Financial and Economic Affairs Commission in February this year made detailed arrangements for large-scale equipment modernization. Subsequently, the State Council's executive meeting reviewed and approved the "Action Plan for Promoting Large-Scale Equipment Modernization and Consumer Goods Replacement" (hereinafter referred to as the "Action Plan"). The government work report for 2024 pointed out the need to leverage the catalytic effect of government investment to promote the renewal and technological transformation of various types of production and service equipment. Promoting large-scale equipment modernization is a major decision made by the Party Central Committee and the State Council, aimed at the overall situation of high-quality development in China, and it holds significant strategic importance, requiring active resource allocation and targeted solutions. In April 2024, the Ministry of Industry and Information Technology and six other departments jointly issued the "Implementation Plan for Promoting Equipment Modernization in the Industrial Field" (hereinafter referred to as the "Implementation Plan"), which is a specific implementation of equipment modernization in the industrial field. It is conducive to expanding effective investment, promoting the continuous increase in the proportion of advanced production capacity, and is of great significance for accelerating the construction of a modern industrial system.

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I. Overall Goals and Implementation Pathways for Equipment Modernization

With the successive introduction of the "Action Plan" and the "Implementation Plan," there are now clear goals and implementation pathways for how equipment modernization should be specifically carried out and implemented. The "Action Plan" focuses on long-term industrial optimization and green development to enhance overall productivity; it combines technological means such as digitalization and intelligence, emphasizing systematic upgrades across the entire industrial chain, improving overall industrial efficiency and service quality, and setting higher standards for the high-end, intelligent, green, digital aspects of new equipment and products, as well as energy efficiency standards.

The "Action Plan" proposes to focus on four areas: new industrialization, new urbanization, transportation, and education, culture, tourism, and healthcare, for the deployment and transformation of key industries' equipment modernization. It mainly includes promoting the modernization of equipment in key industries, accelerating the modernization of equipment in the construction and municipal infrastructure fields, supporting the modernization of transportation equipment and old agricultural machinery, and improving the level of equipment in education, culture, tourism, and healthcare. The "Action Plan" also clarifies that by 2027, the scale of equipment investment in industries such as industry, agriculture, construction, transportation, education, culture, tourism, and healthcare will increase by more than 25% compared to 2023; the energy efficiency of main equipment in key industries will basically reach energy-saving levels, the proportion of production capacity with environmental performance at A-level will significantly increase, and the penetration rates of digital R&D design tools and numerical control rates for key processes in large-scale industrial enterprises will exceed 90% and 75%, respectively.

From the "Action Plan," it can be seen that new industrialization and new urbanization are the key development directions for future equipment modernization, with a significant demand and space for the modernization of traditional old equipment over a longer period. The modernization of transportation equipment and equipment in education, culture, tourism, and healthcare is conducive to promoting industry progress and driving the development of new quality productive forces. Most of the relevant new equipment has characteristics of new quality productive forces, such as high technology, high efficiency, and high quality. In particular, China's medical industry and healthcare service system have reached a critical period of shifting from "quantitative accumulation" to "qualitative improvement," with an increasing dependence on high-tech and high-end equipment.

The "Implementation Plan" is an implementation plan specifically formulated for equipment modernization in the industrial field based on the "Action Plan." The "Implementation Plan" focuses on promoting new industrialization, using large-scale industrial equipment modernization as a starting point, implementing a technological transformation and upgrading project for the manufacturing industry, with digital transformation and green upgrading as the focus, adhering to market-driven progress, standardization leadership, and the integrated renewal of software and hardware, to promote the manufacturing industry towards high-end, intelligent, and green development. The "Implementation Plan" comprehensively promotes equipment modernization and technological transformation through four implementation actions: advanced equipment modernization, digital transformation, green equipment promotion, and safety level enhancement.

Large-scale equipment modernization requires strong support from fiscal and financial policies. Looking back at history, the subsidy methods for equipment modernization have mainly been re-lending and tax reduction. The State Council's executive meeting held in September 2022 decided to provide phased fiscal interest subsidies for equipment modernization and transformation loans in some fields. The meeting proposed, "For new loans for equipment purchase and modernization and transformation in colleges, vocational colleges, and training bases, hospitals, underground comprehensive utility tunnels, new infrastructure, industrial digital transformation, and small and medium-sized enterprises, individual industrial and commercial households, etc., implement phased encouragement policies, with central financial interest subsidies of 2.5 percentage points for a period of 2 years." Subsequently, the central bank announced the establishment of a special re-lending for equipment modernization and transformation, with a quota of more than 200 billion yuan, an interest rate of 1.75%, a term of 1 year, and two possible extensions, each for 1 year. The current State Council's executive meeting also made arrangements for tax reduction policies. The State Council's executive meeting also proposed, "For high-tech enterprises to purchase equipment in the fourth quarter of this year, allow a one-time full deduction before tax in the current year and a 100% additional deduction, and further support from local and central finances." "For industries currently deducting R&D expenses at a ratio of 75% before tax, uniformly increase the deduction ratio to 100% to encourage equipment transformation and modernization." This equipment modernization, in conjunction with relevant departments, implements support policies such as central investment, tax incentives, and special re-lending, increases fiscal and financial support, strengthens standard leadership, enhances factor protection, and establishes a collaborative working mechanism to accelerate the implementation and effectiveness of equipment modernization in the industrial field, and promotes the deep integration of scientific and technological innovation with industrial innovation.

II. The Significance of Promoting Equipment Modernization Policies

Accelerating large-scale equipment modernization is a key measure in the short term to expand effective investment, promote technological progress and industrial transformation and upgrading, improve production efficiency and increase advanced production capacity, and enhance the quality of the supply system and promote green development; in the medium and long term, it is an important tool and guarantee for building a modern economic system, promoting new industrialization, assisting high-quality development of new urbanization, and developing new quality productive forces. In summary, the significance of equipment modernization policies mainly involves eight aspects.In terms of financial support, it is recommended that the central bank establish a special additional re-lending facility for equipment updates and renovations. In the fourth quarter of 2022, the central bank set up a "Special Re-lending for Equipment Updates and Renovations" with a quota of over 200 billion yuan and an interest rate of 1.75%. In April 2024, the central bank established a re-lending facility for technological innovation and technical renovation with a quota of 500 billion yuan and an interest rate of 1.75%. Although technical renovation is inseparable from equipment updates, this is not a special loan for "equipment updates," and it is estimated that only about half of the funds, approximately 250 billion yuan, will be used for technical renovations. In July 2024, the State Council decided to allocate about 300 billion yuan of ultra-long-term special treasury bond funds to vigorously support large-scale equipment updates and the exchange of consumer goods for old ones. According to the specific deployment, about 150 billion yuan of this special treasury bond can be used for equipment updates. Therefore, the sum of the former two amounts to about 400 billion yuan that can be used for equipment updates. Considering that equipment updates are a long-term and arduous task, closely related to the development of new quality productive forces, and of great significance to the high-quality development of China's economy, greater financial support is needed. Therefore, it is recommended that the central bank establish a special loan for "equipment updates" on the basis of the previous one, with a quota of about 300 billion yuan; considering that the interest rate level has already begun to decline and may further decrease in the future, it is recommended that the interest rate be significantly lower, between 1.25-1.5%; it is recommended that provincial governments may provide a 1 percentage point interest subsidy when clearly defining manufacturing-related equipment purchases and update and renovation projects, and encourage municipal and county levels to provide an additional interest subsidy of about 1 percentage point.

Secondly, it is necessary to improve and perfect the recycling system. For the old equipment to be updated, how to recycle and reuse it has become an important issue. The current lack of enthusiasm for recycling by manufacturers and enterprises, the imperfect recycling system in China, and the insufficient strength of government subsidies and incentive measures are important reasons. The weak recycling and reuse function and the poor profitability of recycling enterprises are the constraints on the development of the recycling system. International experience should be learned and referenced to establish and improve a complete recycling and reuse system for old equipment. The government should increase fiscal subsidies to manufacturers, establish incentive mechanisms and corresponding laws and regulations, and require manufacturers to set up special recycling departments to cope with the large-scale recycling needs.

Thirdly, effectively promote the combination of government-led and market development. Industrial equipment and urban equipment update projects are often large in scale, time-consuming, costly, and slow to take effect. It is difficult for the government to quickly and effectively promote them alone. The report of the 20th National Congress pointed out that it is necessary to give full play to the decisive role of the market in resource allocation and to better play the role of the government. The experience of urbanization development in advanced domestic and foreign regions has also fully proved that there is a close complementary relationship between the government and the market. Therefore, it is necessary to further strengthen the government's main responsibility in urban renewal, place the update of industrial and urban equipment in the plan to promote the high-quality development of new industrialization and new urbanization, coordinate the overall planning, special planning, and implementation plans for the update of industrial and urban equipment, widely build platforms for government-enterprise cooperation, strengthen cooperation with excellent enterprises with strong strength, leading concepts, rich experience, and strong innovation ability, take projects as the starting point, establish a reasonable and effective interest linkage mechanism, and form a multi-party joint force for the coordinated development of local governments and enterprises and other market resources.

Furthermore, innovation-driven development should be combined with expanding openness. Whether it is the update of industrial equipment or urban equipment, it ultimately cannot be separated from innovation. The equipment update in the new era and new stage must deeply implement the innovation-driven strategy and always adhere to putting innovative development first. It is necessary to optimize and improve the innovation and entrepreneurship ecosystem, continuously improve the business environment, vigorously cultivate market entities, create regional innovation centers, and create a strong atmosphere of innovation and entrepreneurship. Take the construction of micro-industry agglomeration areas as the starting point to promote the transformation and upgrading of industrial industries, transform and upgrade traditional industries, cultivate and grow emerging industries, and continuously develop future industries and innovative industries. Promote the integrated development of production services and the quality development of life services to achieve a double improvement in industrial core competitiveness and employment absorption capacity. It is necessary to continuously expand openness and strengthen the learning and absorption of theoretical achievements in equipment updates in advanced regions. For equipment update concepts that have been proven to be effective in practice, they should be actively absorbed and referenced from multiple aspects. Deeply learn the advanced experience of international equipment updates, take the improvement of the spatial environment as the entry point, seek new development space for social and economic development, attract and drive investment from all sectors of society, enrich and improve the practice of equipment updates in the new era, and promote better and faster development of equipment updates. Taking Europe as an example, adopt diversified fiscal incentives and subsidy policies, establish an equipment update incentive mechanism; introduce green regulation standards and strengthening measures; improve the support system for technological innovation and research and development; implement circular economy waste management actions and strengthen public environmental protection education and publicity measures.