Coronavirus: China trying vouchers to boost consumer but effort modest compared to HK, US

Orange Wang

China’s central government has endorsed efforts by local governments to distribute prepaid vouchers worth billions of yuan to lift consumer spending amid the coronavirus outbreak, although the packages pale in comparison with direct handouts announced by the Hong Kong government and planned in the US.

The National Development and Reform Commission (NDRC), the country’s top economic planning agency, said it was closely watching voucher programmes in a number of cities and urged other local governments to consider similar measures based on their budgetary leeway.

“We are directing local governments to implement policies to expand consumer spending … and also support local governments launching pragmatic and effective measures in a targeted manner,” Ha Zengyou, deputy head of the employment and income distribution department of the NDRC, said on Wednesday.

Despite applauding the local initiatives, China’s central government has rejected the idea of a nationwide handout as outlandish.

Unlike Hong Kong’s plan to provide HK$10,000 (US$1,287) to each permanent resident or the proposal in the United States for direct handouts to Americans, China feels more comfortable pumping money into its banking system, its state-owned sectors and its massive bureaucratic apparatus to help the economy.

The White House scaled up its proposed relief bill on Wednesday to US$1.3 trillion, including US$500 billion in handouts that would see almost US$2,000 go to each American. Meanwhile, the European Central Bank announced on Wednesday an unexpected €750 billion (US$821 billion) emergency programme to buy government and corporate debt to add cash to the economy.

The relatively small size of the Chinese programme so far highlights the country’s restrained approach to offsetting the economic impact of the coronavirus pandemic compared with what is being done elsewhere.

Leaders of the Group of 20 nations are due to hold a virtual meeting next week amid a call by the International Monetary Fund on Tuesday for a “coordinated and synchronised global fiscal stimulus” to bolster the world economy.

Consumer spending in China has been hit hard by the regional lockdowns and restrictions on travel put it place to battle the coronavirus outbreak.

Retail sales, which have been the biggest contributor to China’s economic growth for the past six years through 2019, plunged 20.5 per cent in the first two months of this year from a year earlier, the first decline on record, following widespread store and factory closures and transport restrictions across the country to stop the spread of the deadly virus.

Nanjing, the capital of the eastern province of Jiangsu, will distribute 318 million yuan (US$45 million) worth of consumer coupons to union members and those in low-income groups, according to an announcement by the municipal party committee on Friday.

In addition, local citizens can register for online lucky draws to win more vouchers with a face value of 50 (US$7) or 100 yuan (US$14) each. The coupons will expire at the end of March at the earliest and at the end of May at the latest.

In Jinan, the capital of Shandong province, municipal authorities announced they would give way vouchers worth 20 million yuan (US$2.8 million). The government of Zhejiang, China’s fourth largest provincial economy, also said last week that it would give away a total of 1 billion yuan (US$142 million) worth of coupons.

But scepticism remains that vouchers will make any significant difference to overall consumer spending, with shoppers continuing to avoid purchases of large ticket items like appliances, furniture and cars.

[The vouchers] won’t solve the fundamental problem. Employment is now the fundamental problem

Xu Hongcai

Xu Hongcai, deputy director of the Economic Policy Commission at the China Association of Policy Science, an advisory body to the Chinese government, said that consumer vouchers would not do much to help consumption recover, but instead only fuel inflation.

“This approach is sprinkling with pepper,” he said, using a Chinese proverb describing the even distribution of limited resources without solving any problem in the end.

“So there will be less money in the pockets [of governments in] a lot of regions apart from those coastal provinces [so] there are financial limitations. [The vouchers] won’t solve the fundamental problem. Employment is now the fundamental problem,” he said.

The surveyed unemployment rate jumped to 6.2 per cent in January and February from 5.2 per cent in December, the highest rate on record. The reading, though, does not include most migrant workers, meaning the situation is likely to be worse as the group have been hardest hit by the outbreak and subsequent lockdowns and factory closures.

China’s State Council, the government cabinet, placed employment at the top of its priority list during Tuesday’s executive meeting.

“Restarting investment projects will be a key tool to boost investment and expand domestic demand,” it said.

Beijing is counting on consumer spending to help pull China out of its current economic doldrums, but surveys show consumers are likely to remain shy about spending even after the virus outbreak has passed.

Consumer confidence fell in February from a year earlier due to the coronavirus epidemic, according to a survey compiled by Beijing-based Capital University of Finance and Economics covering China's 31 provinces, autonomous regions and municipalities.

The consumer confidence index stood at 96.57 in February, down 6.5 points from the last quarter of 2019 and down 7.6 points from the same period last year. Readings above 100 indicate that consumers, on balance, are optimistic, while readings below 100 show that they are not, said the survey, which was based on more than 1,700 questionnaires collected between February 15 and 20.

Other indicators that took a dive were the employment confidence index and retail price confidence.

“The main concerns were over the expected employment situation in the next month,” said the survey. “Consumers are generally worried about the price level, needing reassurance over stability of prices.”

Additional reporting Amanda Lee

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