The Scissors Gap of a Subsidy Roll-Back — The Channel Collapse After the National Water-Purifier Subsidy Was Withdrawn

In early 2026, water purifiers were dropped from China's national trade-in subsidy catalogue. Twelve months of subsidy support had forced a category whose household penetration rate was below 15 percent onto a fast-growth track; once the policy was withdrawn, the industry's growth rate fell back to its endogenous trajectory with equal violence. The core of the problem lies not in the growth-rate decline itself, but in the channel-expansion momentum's inability to brake in sync.

An Accelerated Curve

In January 2025, water purifiers were, for the first time, included in the national trade-in subsidy, with subsidies of 15 to 20 percent and a cap of 2,000 yuan. The effect was immediate: in the first quarter of that year, sales reached 4.2 billion yuan, up 21 percent year on year; offline sales of the leading brand Angel (安吉尔) grew 28 percent year on year, and the average selling price rose 7.8 percent to 2,515 yuan. Brands read the subsidy stimulus as a long-term demand signal in lower-tier markets and quickly translated it into channel-expansion plans — Angel alone added 233 new stores between January and April 2025, covering 143 cities across 28 provinces, and on a single day in Kunming opened nine new outlets back-to-back.

That year, the phrase "volume and price rising in tandem" (量价齐增) appeared in every report. But two variables underpinning this curve were overlooked: sales driven by subsidies are not steady-state customers; and dealers' working-capital cycles, advanced against future subsidy reimbursements, stretched to three to six months. The more brands expanded, the tighter dealers' cash flows became.

The Reversion After Policy Withdrawal

On December 30, 2025, the National Development and Reform Commission and the Ministry of Finance narrowed the home-appliance trade-in catalogue from twelve categories back to six. Water purifiers were dropped. The subsidy rate was unified at 15 percent, the cap cut to 1,500 yuan, and only products rated Grade 1 energy efficiency remained eligible.

For the water-purifier industry, this was not a roll-back but a supply cutoff.

The water-purifier industry's organic growth rate in 2024 was around 17.2 percent. In the first half of 2025, with the subsidy stimulus, growth reached 22 percent — but stripping out the subsidy factor, the endogenous growth rate was almost certainly not significantly higher than the former figure. The disappearance of subsidies in 2026 brings not only the direct impact of policy withdrawal but also a digestion period caused by the advance pull-forward of demand in the second half of 2025. This means the industry's growth rate in 2026 will most likely fall below the 2024 baseline, and could even turn negative.

The Formation of the Scissors Gap

The truly brutal part is not the demand decline itself, but the channel expansion that cannot brake in sync.

Dealers who entered during the 2025 expansion phase saw the subsidy-driven foot-traffic and conversion rates, and easily overestimated the market's real capacity. When subsidies disappear in 2026, multiple stores in the same county town compete for the same pool of consumers. The 233 new Angel stores are merely a microcosm of the industry's broader push into lower-tier markets.

Dealers are locked in by three layers of pressure:

Capital pressure. The subsidy funds dealers advanced against are frozen inside local-finance review workflows, with some dealers reporting that as of now 30 percent of the funds they advanced have still not been paid out. The working capital tied up here directly kills their purchasing power.

Soaring customer-acquisition costs. Water purifiers are a category driven heavily by word-of-mouth. Angel's cumulative complaints on the Heimao (Black Cat) consumer-complaint platform have topped 925, covering product quality, after-sales service, and disputes over replacement filter cartridges. In the close-knit social fabric of county towns, negative information of this kind spreads much faster than in first-tier cities. Dealers find that the time spent explaining, placating, and resolving complaints has already exceeded the time spent selling new machines.

Same-brand cannibalization across stores. Building-materials commercial districts in lower-tier cities usually contain no more than three to five retail clusters. When the same brand packs multiple stores into the same commercial district, they cannibalize each other. When real demand cannot support multiple outlets, the stores that entered last, advanced the most capital, and sit on the thinnest reserves are the first to fall.

Surface Lesions and Deeper Maladies

The industry's habit is to attribute this collapse to the "roller-coaster effect" of policy withdrawal, but that is only the surface.

The deeper problem is that the 2025 expansion did not resolve the water-purifier industry's fundamental contradiction — the business model of selling machines cheaply and replacement filters expensively. The promised three-year filter-replacement cost is around 1,250 yuan; in reality, three years require about 2,900 yuan. During the subsidy period, consumers became less sensitive to terminal prices and more easily accepted this low-then-high cost structure. But after the roll-back, consumers attracted by low prices do the math again, and the gap between expected and actual filter-replacement costs translates directly into erosion of brand trust.

There is also a more subtle perception gap: tests by professional bodies show that commercial water purifiers in public spaces — where water volumes are high and filter replacements are managed by dedicated staff — actually deliver more stable effluent quality. Household water purifiers, by contrast, see low daily water throughput, with filters and internal piping sitting in low-frequency flow for long stretches, creating conditions that favor bacterial growth. In county-level markets where penetration is below 15 percent, the spread of information of this kind constitutes a new threshold that suppresses demand: consumers who lack systematic knowledge before purchasing, once they learn the gap through word-of-mouth, will see their judgment of the necessity of a household purifier directly shaken.

A Reusable Analytical Framework

What policy leverage moves is the amplitude of the growth curve, not its direction. When subsidies are rolled back, the industry is bound to fall from the "accelerated-ripening curve" back onto the "endogenous-growth curve." The wider the gap between the two, and the stronger the momentum of expansion, the more concentrated the downturn's pain becomes at the channel end — because brands can pass pressure on through price increases and cost compression, while dealers are one-time-investment, continuously-operating entities with no elasticity to move up or down.