Global IssuesECONOMY-CHINA: Consumption Coupons Sans Protectionism
Under pressure to address trade imbalances by boosting domestic demand, China has approved the handing out consumption coupons. The measure is free of protectionist overtones like the contentious 'buy American' in the U.S. economic stimulus bill.
'The issuance (of consumption coupons) is a special form of action taken under special situations,' Jiang Zengwei, vice-minister of commerce, said at a press conference last week, signaling Beijing’s approval to the initiative undertaken by several local governments.
'It is proper and it is feasible,' he said. 'As far as I’m concerned, cities like Chengdu and Hangzhou have seen a boost in local consumption because of the coupons.'
The U.S. stimulus plan has come under intense scrutiny by Chinese economists, concerned about the fate of China’s investments in the U.S. and the prolonged slump in its markets, which has sapped China’s exports.
Many have criticised the plan’s protectionist content, including the 'buy American' clause as one hurting the interests of the U.S.’s trade partners.
'The developing countries should have the right to take similar actions to protect their interests,' Mei Xinyu, researcher with the Chinese Academy of International Trade and Economic Cooperation, argued in the China Business Journal.
But Beijing’s official response has tried to draw a line of comparison by pledging that China will not implement 'buy China' polices in its attempt to reverse the economic downturn.
At the same press conference last week, Jiang Zengwei appealed to retail giants Wal-Mart and Carrefour to 'go down' to the Chinese countryside and broaden their networks by servicing the country’s large rural population.
It also pledged a series of measures to boost rural consumption, like the development of rural retail networks, called ‘the 10,000 county and village markets,’ and subsidies for purchase of electronic goods.
Local governments however seem to have taken matters in their hands already, deploying unusual means to deliver on Beijing’s call to boost domestic consumption.
To encourage the buying spree that usually accompanies Chinese New Year celebrations, last month several localities issued millions of dollars worth of store coupons to persuade inherently thrifty Chinese to go out and spend.
Chendgu, the capital of Sichuan province, issued coupons worth 38 million yuan (5.5 million US dollars) to thousands of jobless workers, students and elderly. City fathers in Hangzhou followed suit, distributing booklets of 200 yuan (29 dollars) each to low-income earners for use in local supermarkets, bookstores and electrical appliances stores.
Cities boasting attractive tourist sites, like Nanjing in Jiangsu province, began distributing tourism coupons to revive sluggish spendings at restaurants, shops and hotels.
Several other Asian economies have implemented coupon schemes in the past months. Japan has given its citizens coupons worth 15,000 yen (163 dollars) each. Taiwan and South Korea have also issued purchase vouchers to encourage domestic spending.
China’s initial reception to the idea though has been lukewarm. When Nobel prize-winning economist Robert Mundell proposed the scheme during his attendance of an economic forum in Nanjing in December, Chinese economists rejected it as unfeasible and unhealthy.
'Such a plan would hurt Chinese people’s precious spirit of self-reliance,' the ‘Beijing Youth Daily’ quoted an expert from the ministry of commerce as saying, warning that issuing consumers coupons would destabilise government’s plans to revitalise the economy.
Chinese policymakers have unveiled a broad stimulus package worth four trillion yuan (588 billion dollars), which is heavy on capital-intensive projects with emphasis on transport and power grid. But since the capital and resources for such infrastructure projects are being allocated through the hands of the government, the plan could stimulate consumer spending only indirectly.
Mundell suggested that a trillion yuan (147 billion dollars) of the package should be dedicated to boosting consumption through shopping coupons. And while economists debated and officials frowned at the measure, it was adopted by the more daring cities.
The response of ordinary people has been mixed. In Beijing, which is always cast as the window case of China’s economic success, residents do not want to be reminded of the days when food was rationed and they were handed out coupons for rice, cooking oil and other basic necessities.
'It would feel weird going out to shop with coupons like in the days when Mao Zedong was alive,' says elderly Chen Guogang. Chen has the support of his two children and does not qualify as a low-income earner, but he thinks that if Beijing adopts the consumption coupons it will bode ill for the country’s economic fortunes.
Local media in Hangzhou has reported on government plans to expand the experiment by paying civil servants part of their wages in shopping vouchers.
'By doing this, we are showing (local) firms that we are fighting the difficulties with them,' Wang Guoping, Hangzhou party chief, said at a press conference last week. But several of the interviewed civil servants said they were unhappy about the proposal, given how low their salaries were.
Public criticism of the coupons has centred on the fact that it does not extend to the neediest. Consumption coupons have been issued only in cities and not in the countryside where the biggest pain of the economic downturn has been felt.
The government estimates that at least 20 million migrant workers have lost their jobs as external demand for China’s manufactured goods is drying up and factories in the south are going bust.
In 2007 Chinese peasants derived nearly 40 percent of their annual incomes from wages earned in factories and remitted back to the countryside.
Economic experts point out that only expanded social safety net could unlock private consumption in a country like China which is reputed for its tradition of frugality and high savings. If Chinese people do not need to save so much for healthcare, education and pensions, they might be easily persuaded to loosen their wallets, they argue.
For example, in 2005 only 32.5 percent of the population in the city and the countryside was covered by any type of pension scheme, according to a study conducted by the Chinese Academy of Social Sciences.
Wang Deming, researcher with the academy’s Institute of Population and Labour Economics, says that the guarantee of social insurance for each new Chinese person would result in an increase of direct consumption by 153 US dollars in the cities and 70 dollars in the countryside.
'The role of stronger social safety net for boosting private consumption is undeniable,' he says.
© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service