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
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
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
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
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
Vouchers were feasible "as a tentative and temporary measure" to bolster the
economy under the special circumstances, Vice Minister Jiang Zengwei said on
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
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
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
Olivia Chung is a senior Asia Times Online reporter.