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    China Business
     Feb 14, 2009
Chinese offered consumer tickets
By Olivia Chung

HONG KONG - China's local governments from Hangzhou in the northeast to Chengdu in the center of the country, concerned at factory closures and millions of workers losing jobs as export markets collapse, are taking their own steps to boost economies in their areas by issuing shopping vouchers.

Publicizing their efforts, television programs show hundreds of customers holding shopping vouchers as they line up at checkout counters.

Even the government of capitalist Hong Kong, where most factories have long-since moved across to the mainland, has been

 

urged to give away sales vouchers to help its people tackle tough economic times. The response will become clear when the semi-autonomous region's budget is delivered on February 25. There is certainly cash in the kitty for such a move, with the government budget surplus rising to HK$40.3 billion (US$5.5 billion) in December, up from HK$35.6 billion a year earlier.

China's factories are closing and workers are being laid off at a frightening rate as overseas demand for their products crashes. The pace of decline in exports surged to a 17.5% fall to US$90.45 billion in January, compared with a year earlier, up from a 2.8% decline in December, according to General Administration of Customs figures released on February 11.

Imports contracted by 43.1% year-on-year to US$51.34 billion last month, much sharper than a forecast 25% decrease.

Goldman Sachs economist Song Yu said the drop in exports was extraordinary, while Jing Ulrich, managing director and chairman of JPMorgan China equities, said the big contraction in imports likely signaled continuing export weakness in the future.

The shrinking export market makes it more urgent for China to expand domestic demand if factories are to keep running. At an annual central economic work meeting chaired by President Hu Jintao and Premier Wen Jiabao at the end of last year they said boosting domestic consumption to maintain stable and relatively fast growth was the top priority for the year ahead.

To that end, the Chinese government unveiled a 4 trillion yuan (US$585 billion) stimulus package. It also declared subsidies for farmers - the country has about 700 million peasants - to buy home appliances in a bid to boost rural consumption. Several local governments believe more needs to be done, and have taken their own measures.

Chengdu, capital of Sichuan province in west central China, has led the nation at the start of the year by issuing shopping vouchers worth 100 yuan (US$14.6) to about 380,000 low-income local residents in urban and rural areas. The city (in China, the term can refer to an area that also encompasses large non-urban areas) has a population of more than 10 million, with about a third living in urban areas.

The coupons had to be used in designated shops before January 31. A spokesman of the Chengdu bureau of civil affairs claimed success for the scheme, saying almost all the issued vouchers had been used.

Asked whether the vouchers could boost gross domestic product, the spokesman said "definitely" - but declined to give figures. The scheme, he said, was also to let people feel the government's concern for them, a reflection of widespread worry that slowing economic growth will increase the risk of civil unrest.

Chengdu's efforts to boost consumption was followed by Hangzhou, capital of Zhejiang province, south of Shanghai. The city, while famed for its natural beauty, has a strong industrial base particularly in electronics and related sectors, with multinational companies such as Microsoft, Motorola, Intel and Infosys all having operations in the city.

The local government issued 100 million yuan worth of coupons for low-income families before the lunar new year, an important two-week holiday which this year ran from January 26. Sales of Hangzhou-made home appliances doubled during the holiday period compared with the same period last year, according to local officials. Four big shopping malls received 1.52 million yuan worth of coupons, redeemed against 5.4 million yuan worth of goods, one said.

A 65-year-old Hangzhou native named Zhang said he and his family used coupons worth 300 yuan at a supermarket on January 24 when the coupons took effect, buying traditional coats and ingredients for the New Year's Eve dinner - an important reunion occasion for families, now often dispersed for the rest of the year as they seek work in distant parts of the nation.

As the value of his purchases was less than the value of the coupons and the remainder cannot be exchanged for cash, the saleslady at the store gave him some vegetables to help make up the difference.

"I am delighted to have the vouchers as I could save my money," he said.

To the extent that Zhang and people like him might have spent the money had they not had the vouchers, doubts have been voiced over whether hopes that the coupons will boost spending is misplaced.

That is not deterring the Hangzhou government from considering an extension of the scheme by paying its civil servants in coupons.

The city's senior Communist Party official Wang Guoping told a conference this month that local civil servants might receive part of their wages in shopping vouchers, according to a Metropolitan Express report on February 9.

"They are to receive about 5% to 10% of their wages in the form of shopping vouchers," Wang was quoted as saying. The mayor and Wang "will take the lead and all civil servants will follow", he said.

However, a Hangzhou government spokesman said a consensus on the issue had not been reached and officials were still looking into the possibility of an expanded stimulus policy.

A civil servant named Li described the government's possible move as unfair. "Pay is low but the tax is high, and being paid in coupons is like a pay reduction."

Such schemes were tried in Japan about a decade ago when the government tried to boost the economy through a public-spending package, near zero lending rates and the distribution of about 700 billion yen (US$7 billion) in shopping vouchers.

At the beginning of 1999, shopping vouchers worth 20,000 yen handed to citizens over 65 years old, those eligible for public-welfare assistance and those with children 15 years or younger. Subsequent retail sales data showed Japanese consumers kept a tight grip on their wallets.

Sales at Japan's largest stores fell 4.8% year-on-year in April, 1999, according to the Ministry of International Trade and Industry, which said the large-store figure was worse than their forecast of a 3% decline. At the same month, overall retail sales across Japan fell 1.8%.

Mei Xinyu, a researcher at the Ministry of Commerce's Chinese Academy of International Trade and Economic Cooperation, said the effect of issuing consumer vouchers would be short-term even it has any effect.

"It is likely that what consumers buy with vouchers will replace what they would have bought without them. In this sense, the vouchers do not necessarily increase consumption at all," he said.

Issuing consumer vouchers might also discourage Chinese people's spirit of struggle against adversity, he said.

Mei said alternative ways of boosting domestic demand included job creation, which ensures the public has more disposable income in the future.

"Moreover, China needs to improve social security, including the pension system, medical care and compulsory education. Only by resolving people's concerns about welfare, medical insurance, education and other social security problems, can people be convinced to buy more."

Certainly the prospect of the central government introducing the voucher scheme nationwide is remote, though it has agreed to some local governments using the scheme.

Vouchers were feasible "as a tentative and temporary measure" to bolster the economy under the special circumstances, Vice Minister Jiang Zengwei said on Monday.

Looking at the bigger problem of declining demand for exports, notably in the US, a vital market for Chinese goods, Jiang stressed at a press conference that China would not attach a "Buy China" requirement to its economic stimulus measures. The US has indicated that a "Buy America" provision could be included in its own economic stimulus package.

Jiang said: "We just need to boost consumption, whether it's through domestically made goods or foreign-made goods. Why should one be protectionist under the current circumstances? I don't think China will implement 'Buy China'. As long as there's demand, we'll treat domestic and foreign products the same way."
In the US, some lawmakers want to include a "Buy American" provision in the US$827 billion stimulus package still to go in front of President Barack Obama for his signature. The Senate last week watered down the provision after Obama warned of the risk it created of a trade war.

Jiang also said that although more than 80% of China's goods came from domestic sources, the country had to import industrial raw materials, luxury items and farm products.

In the week-long holiday through January 31, nationwide retail sales were 13.8% higher than in the corresponding holiday week a year earlier, the Ministry of Commerce estimated on February 1.
Sales of food, a sector at the heart of strong inflationary pressures last year, jumped 23% in value terms. Sale of home appliances gained 17.8%. Beverage sales increased 17.5%, while tobacco and alcohol sales rose 14.7%, the ministry said.

Zhang in Hangzhou said the only conditions of his shopping vouchers were that they be used by September 30 to buy goods locally. They cannot be deposited as savings in banks or exchanged for cash. No change will be given if the value of a purchase is less than the value of the coupons.

A senior official in the Beijing government said on February 11 that the national capital was not considering issuing shopping vouchers as it offered a comparatively integrated welfare system to people with low incomes or without working ability.

Olivia Chung is a senior Asia Times Online reporter.

(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)


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