Economy

Coupon culture

Local officials use vouchers to stimulate demand

Huaihua-w

A school in Huaihua

Teachers and civil servants in the city of Huaihua in central Hunan province got a shock when they received their April salaries.

About a quarter of their normal pay was missing, replaced by vouchers for spending in local restaurants, shops and cinemas. The idea is to stimulate consumption as the city emerges from two months of coronavirus lockdown.

Like most cities in China, Huaihua closed its schools, confined people to their homes and shut down everything but essential services. This helped keep down the death toll – although 40 people still died in Huaihua – but with China’s economy registering a 6.8% contraction in the first quarter, the goal is now to make up for lost time.

“Promoting consumption through some short-term stimulus policies can trigger temporary consumer demand that is dormant due to the impact of the epidemic and thus lay the foundation for acceleration in orders and production,” the People’s Daily wrote.

Relative to many other countries, China has held back on emergency spending, designating a smaller percentage of its GDP for post-lockdown stimulus. Experts posit this is because even prior to the current crisis the government was trying to reduce the level of debt in the economy, much of which began to accrue when it splurged huge amounts on stimulus after the 2008 global financial crisis.

This time it has opted for more conservative measures, such as extending credit lines to small lenders, issuing special bonds and printing consumption vouchers – in the hope that domestic demand will fill some of the huge shock being created by Western economies going into recession.

As of April 9 some seven provinces and 20 cities had issued consumption vouchers, according to the Ministry of Commerce. The 21CN Business Herald calculates that they had a value of almost Rmb5 billion ($705.6 million) and in most cases are issued in addition to salaries.

The idea is to encourage people to spend more – for example, you can only use a Rmb45 voucher in a supermarket if your bill amounts to more than Rmb300.

However, many economists doubt their value in triggering more spending, saying that Chinese households are likely to save even more than they have done previously as businesses fold and unemployment increases, particularly among small and medium-sized enterprises (see WiC484).

“The government shouldn’t be issuing consumption bonds. It should be vigorously supporting small and medium-sized enterprises so they survive and guarantee employment stability,” Zhang Jun, Dean of the School of Economics at Fudan University told ThePaper.cn.

Provincial officials are also doing their best to get their local economies moving again.

For instance, bosses in Gansu have tried to boost their economy by ordering Party cadres to eat out more often and spend no less than Rmb200 per meal in local restaurants.

In Shanxi, Sichuan and Guangdong, some citizens are being offered subsidies of up to Rmb10,000 to buy a new car after sales of vehicles plunged 42% in the first quarter, according to the China Association of Automobile Manufacturers.

Other moves to stimulate travel and tourism include giving people a two-and-a-half day weekend – a measure trialled in Zhejiang, Hebei, and Jiangxi provinces.

Back in Huaihua the government has had to backtrack on its decision to pay wages in coupons instead of cash salary. Anger over the reintroduction of this Soviet-style payout even provoked rebukes from the state media. “A teacher’s salary is personal legal property. When and how to consume is a private matter. The use of administrative orders to force teachers to consume is overreach and should be corrected immediately,” demanded the Economic Daily.

“Only by gaining the understanding and support of most of the people can these regulations be smoothly advanced,” the People’s Court News agreed. “Otherwise, it will inevitably affect the credibility of the government,” it warned.


© ChinTell Ltd. All rights reserved.

Exclusively 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.