Economy

EXTREME COUPONING

Discount coupons worth billions of yuan have been handed out to the public to shore up the services sector, but some economists believe there are better ways to protect jobs and increase consumer spending

By Xu Ming Updated Jul.1

When a message popped up on her phone telling her she had been offered shopping and dining coupons, Cathy Wang from Zhuhai in southern Guangdong Province ignored it, fearing it was an all-too familiar scam to get cash out of people. She did not realize the government was at the helm of the scheme until she learned that many of her colleagues had already received and used some. 　

In an effort to boost consumer spending, dozens of Chinese cities are handing out billions of yuan worth of coupons to be redeemed in sectors of the economy which have been hit hardest by the coronavirus pandemic. After first-quarter GDP growth plunged 6.8 percent, particularly in consumption, giving out discount coupons is being touted as an efficient way to push up domestic demand quickly. This will stabilize employment and reverse the decline in economic growth, according to some economists. 　

The coupons have had some effect in leveraging consumption, according to a Peking University report released in April. But some have criticized the scheme’s fairness and efficiency. And also because the impacts of the pandemic on the job market and consumer confidence are expected to be long term, uncertainties in the job market and shrinking incomes mean people, particularly low-income groups and debt-ridden households, will spend less out of precaution. These concerns need to be addressed to ensure stable consumption, experts said. 　

Demand Matters

For six years in a row consumption was the biggest force driving the Chinese economy. In 2019, it accounted for 57.8 percent of GDP. When China’s GDP contracted by 6.8 percent year-on-year in the first quarter of 2020, the first drop since 1992, the drop in consumer spending alone contributed 4.4 percentage points. Per capita consumer spending dropped 12.5 per cent year-on-year while total retail sales plunged by 19 percent, according to the National Bureau of Statistics (NBS). 　

Consumption in the country was suppressed following the nationwide lockdown which started in late January. The tertiary industry, particularly sectors that feature mass gatherings or face-to-face contact suffered the most. These are the sectors which take more time to recover than other industries due to lingering fears and weakened spending desire. Some sectors are yet to reopen.　

While there have been cyclical downturns after China started its process of reform and opening-up in the late 1970s, consumption has never declined, and certainly not by so much, said Yao Yang, a professor of economics at Peking University. Yao told NewsChina that the plunge is mainly due to lack of demand, which will affect a large number of consumers, particularly middle- and low-income groups. It will also suppress industrial production. 　

To keep businesses running and to stabilize employment, since February the People’s Bank of China (PBoC), China’s central bank, has injected more liquidity into the market and dropped interest rates to make financial support available for small- and medium-sized enterprises (SMEs). There are also policies exempting SMEs from social security contributions and reducing taxes and fees. 　

These conventional means did not receive unanimous applause. Although offering support to enterprises will help stabilize the job market and benefit consumption, some economists said it is too slow in the current context, as it is more urgent to boost demand directly. They cast doubt over whether bailing out enterprises is the most reliable method to boost consumer spending. 　

Li Xunlei, an economist from Zhongtai Securities, called on the government to give subsidies directly to workers as some other countries have done. In an interview with Southern Weekly, he described giving subsidies to companies as a “blood transfusion” which may cause oversupply, while giving subsidies to households will create demand. “How can you make sure the company will survive even with the subsidies and will not fire its employees?” Li said. 　

Yao said that boosting consumption should be prioritized as companies need orders the most to generate income. He said bluntly that without orders, there is no use giving loans to companies that only help them keep workers on the payroll. 　

The spread of the pandemic worldwide further signals a bleak picture for external markets, which puts more pressure on domestic consumer spending. “Encouraging consumption and releasing suppressed demand and untapped spending potential are key measures to counter the impact of the outbreak and lift the economy,” Ha Zengyou, an official from the National Development and Reform Commission (NDRC), China’s top economic planning body, said at a March press conference. 　

People gather on a pedestrian street in Shenzhen, Guangdong Province on May 5 after pandemic restrictions were lifted

Deluge of Coupons

In a dialogue held by Chinese content provider NetEase, Yao said it would be better if a fraction of China’s planned investment in infrastructure in 2020, which reportedly totals 30 trillion yuan (US$4.2t), was shared among the 40 percent of people with the lowest incomes who have been affected the most. “If everyone was given 2,000 yuan (US$282), consumption would instantly improve,” Yao said. Other economists have suggested the government give low-income groups big cash subsidies.　

The anticipation Chinese households may have felt when they saw cash handouts being given to the public in other countries such as Japan and the US has been dashed. The US gave every adult citizen a check for US$1,200 and Japan is offering 100,000 yen (US$934) to all residents as a one-time payment, including foreign residents. 　

In China, there was mainly a deluge of coupons instead. From March, local governments rolled out the electronic coupon giveaway, assisted by e-commerce and payment platforms and business owners. In a 30-point guideline released on April 22 to promote consumption, the Ministry of Commerce (MOFCOM) explicitly encouraged local governments to stimulate spending by handing out vouchers. Boosted by the five-day May Day holiday, the longest since 2008, by May 8 more than 170 cities gave out coupons worth 19 billion yuan (US$2.7b), MOFCOM vice minister Wang Bingnan said at a press conference held in Beijing in May. 　

The discount vouchers range in value from 5 yuan (US$0.7) to 100 yuan (US$14). Theyare given randomly and are valid for catering, tourism, hotels, retail and more. The amount varies in different places according to their economic development. Most are only valid if a certain amount is spent, 30 yuan (US$4.2) off on an order of 100 yuan (US$14), for example. Some cities give out special vouchers for certain products, such as vehicles. The coupons were applauded in many places, seen from netizens’ posts on Weibo saying that they had “won the lottery” and gone out to “stimulate consumption.”　

With China’s ingrained culture of saving money, coupons are regarded as more effective in stimulating consumption rather than giving cash handouts or personal income tax reductions. Cash and saved taxes will probably disappear into the bank, or be used for other purposes, while coupons which can only be used in a limited way and are more likely to be used, Ge Yuyu, a teacher at the Shanghai National Accounting Institute, wrote in an article published on news outlet The Paper. 　

The coupons did have an effect on spurring spending, though it differed from place to place. Hangzhou, capital of Zhejiang Province, started issuing coupons on March 27. By April 26, local authorities had given out 375 million yuan (US$53m) in vouchers and mobilized spending worth 4.1 billion yuan (US$578.5m). On April 3, Zhengzhou, capital of Central China’s Henan Province, granted 50 million yuan (US$7.1m) in coupons. By April 16, about 80 percent of the coupons had been used, yielding 552 million yuan (US$77.9m) in spending. 　

A survey by Peking University and Alibaba affiliate Ant Financial in late April shows that in Hangzhou, every yuan the government spent in coupon subsidies yielded at least 3.5 yuan (US$0.49) in spending. Liu Qiao, head of the research team and a professor at Peking University, proposed in the report that another 500 billion yuan (US$70.5b) should be granted in coupons, which they predicted would drive up retail sales of consumer goods by 4.25 percent.　

The report also noted that the effect of coupons in Hangzhou is connected to its existing economic strength and consumption environment. The coupons it gave out were worth more than in most cities. Governments in less developed areas are issuing lower-value coupons and people there spend less and are more fiscally cautious, which will weaken the effect in mobilizing spending as a way out of the slump, experts said. 　

Overall, said Cai Zhen, a researcher at the National Institution for Finance & Development, “the coupons did a good job in boosting consumer confidence, which fast-forwarded the recovery in consumption.”　

‘Chicken Rib’

But doubts persist. The coupons worth small amounts of money have been rubbished as being not worth the effort - like a chicken rib, in Chinese slang. In an article published on Caijing, a financial outlet, Xu Qiyuan, a research economist at the Chinese Academy of Social Sciences, analyzed what coupons had been issued in 42 cities by April 27 and found that among the issued 6.52 billion yuan (US$919.9m), each person would get 19.6 yuan (US$2.8) on average. Only 29 percent of the cities gave out coupons worth more than 30 yuan (US$4.2) per capita. Several people interviewed told NewsChina that they had received coupons for 5 yuan (US$0.7) or 10 yuan (US$1.4) but felt no inclination to use them. 　

Some dismissed the government’s efforts to make them spend more instead of increasing their income. Under a NewsChina article discussing coupons, one netizen commented, “Using coupons means you have to take more money out. It’s no different than the promotional tricks used by [e-commerce site] Taobao vendors, only with a nicer name.” 　

Xu said that the coupons put more emphasis on helping enterprises and are promotional in nature by limiting their use to certain fields, and some cities set high thresholds, like 50 yuan off a purchase of 800 yuan, which equates to a US$7 discount on goods worth US$113. The coupons in many places can only be used in downtown areas, so are costlier for people from rural areas to benefit from. And nearly all coupons are electronic and require mobile payment, which is challenging for the elderly and some low-income groups who actually need aid the most. 　

“High-income groups will spend anyway. [In this special time] only when people with low incomes go out to spend can consumption be shored up. But the coupons are not doing enough to benefit this group,” Gan Li, director of the Survey and Research Center for China Household Finance at Southwestern University of Finance and Economics, said in an interview with The Paper.　

Luo Zhi, a professor of economics from Wuhan University, said she doubted the efficiency of giving out coupons indiscriminately among citizens at all levels of income.

“The goal should be clear. If it is to sustain consumption, the government should directly give money or subsidies to people who have problems maintaining a normal life. If it is to stimulate consumption, coupons could work among people whose lives were not much affected, but the focus should be on more expensive goods instead of daily necessities to produce a better effect,” Luo said. 　

It will be worse if more people have no disposable income after losing their job or choose to save amid uncertainties about future income. “People only dare to spend when they are sure about future income, and vice versa,” she said. 　

The unemployment rate rose to 6.2 percent in February, one percentage point higher than the previous quarter, the NBS said. These figures, many observers say, fail to reflect the true impact of the pandemic on the job market given that the unemployment rate is a lagging indicator. The NBS does not count some of the self-employed or the tens of millions of migrant workers from rural areas who are designated as farmers, even though they generally work in urban areas in fields like construction and the services sector. If they are laid off, they are expected to return home and are therefore not counted among the unemployed. 　

A report published by Zhongtai Securities in April predicted the real unemployment rate to be around 20 percent, meaning an increase of 70 million unemployed. 　

Wang Tao, an economist from UBS Securities, wrote in an article published on the China Chief Economist Forum, a financial platform for economists to share their views, that the job market is facing its biggest challenge in 20 years. The employed population might decrease by 14 million in 2020 despite a gradual pickup in the coming months, while the net increase was around 10 million in the past five years, she said. “In spite of that, China’s direct subsidies to the jobless population and those with low incomes are relatively limited,” Wang wrote. 　

The PBoC data shows that yuan savings increased 8.07 trillion yuan (US$1.1t) in the first quarter while household savings rose 6.47 trillion yuan (US$912.2b). In a survey by the PBoC among 20,000 depositors in 50 cities, 27.5 percent said their income had decreased, 15.4 percentage points higher than the previous quarter. Confidence in future income dropped by 7.2 percentage points and more people are inclined to save.　

The high levels of household debt may aggravate the situation. A PBoC survey in April shows 56.5 percent of urban households were in debt in 2019, among which mortgages take up 75.9 percent. Indebted households without savings could be deprived of all spending power if they lose their jobs, experts said. 　

“In stimulating short-term consumption, the livelihood of low-income people should be guaranteed while employment must be stabilized,” Luo said. For the time being, she suggested the government screen companies in difficulty and give “employment subsidies” directly to their employees to keep them on the payroll. “It might help to both ease companies’ burdens and ensure that people stay employed, which will help consumption in the end.”　

But to be fair and efficient, the government needs to do a better fundamental job in finding out the real situation, including quantity and financial situations, of small companies, the self-employed and low-income groups, where it is not doing enough, Luo said.

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