China Consumer

Coupon culture

Local governments’ latest weapon to stimulate consumer demand

Coupon culture

"Two coupons for a trip to the dentist, please"

Citizens using coupons to buy products? Hang on, wasn’t that what happened when Mao was in charge and the economy was planned? But this time there’s a twist: these coupons are designed to save capitalism, not destroy it.

Local governments all round China are keen to stimulate consumer demand and coupons are perceived to be a quick fix. Unlike tax rebates, they have to be spent. And even better, they have to be spent locally, meaning local businesses are the big beneficiaries.

Hangzhou got the ball rolling. Over the Chinese Lunar New Year it issued Rmb100 million ($14.6 million) of coupons to city residents. Around 15,500 households qualified for a Rmb200 coupon. Around 310,000 retirees also got Rmb200; while 260,000 school children got Rmb100 each.

Each coupon had a denomination of Rmb20 and was valid for three months. They could be used to buy daily consumables, colour televisions, white goods, as well as film tickets and books.

The giveaway was incredibly popular. The Beijing News ran an article that began: “If you want to know which city’s citizens are happiest this Lunar New Year, undoubtedly the answer is Hangzhou.”

Indeed, so successful was the scheme that Hangzhou decided to do a second round. At the end of February it announced a further Rmb600 million of coupons would be printed. This time Rmb300 million would be ‘public consumption’ coupons; while the rest would be more targeted, such as coupons specifically to be spent on tourism.

The city remains very pleased with the scheme and its Trade Bureau calculated over the Lunar New Year period that the coupons had a strong multiplier effect. For every Rmb20 coupon, around Rmb40 of new consumption resulted.

Not surprisingly, other cities have followed Hangzhou’s lead, including Chengdu, Dongguan and Changsha.

The Zhejiang Daily says not everyone is so keen on the idea of coupons. Mei Xinyu, an associate researcher at the Ministry of Commerce thinks that the issuance of coupons by local government is in violation of the law. China’s currency can only be issued by the central bank, and in the cities that coupons are issued they are taking on the role of a ‘shadow currency’ says Mei.

Sun Lijian, vice-president of the School of Economics at Shanghai’s Fudan University reckons the coupons are just like blood transfusions. They can’t be issued forever, and once they are withdrawn it will lead to a collapse in consumption.

Others point to the fiscal implications. For example, Chengdu has already seen declines in its monthly tax revenues of 4.2% per month, and giving away vouchers will only worsen the city’s finances.

Not everything has gone entirely to plan, however. On March 1, Hangzhou decided to lure tourists from neighbouring Shanghai and began issuing 135,000 travel coupons. Around 5,000 Shanghainese lined up outside the two Shanghai branches of the Hangzhou Bank to pick up the coupons. But at 2pm bank staff told the queuing masses that no more coupons would be issued. Pandemonium ensued. Doors were forced and coupons looted.

Not the frenzy of demand that the scheme’s originators would have wished for.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.