To boost the slumping economy, Beijing has taken a number of steps in recent weeks. For example, to encourage people to spend more, more public funding is going into health care and education. But even if (and it's a big if) the incorrigibly thrifty mainlanders take heart from policymakers' efforts to strengthen the social safety net, the impact on their spending patterns may not be felt in the short term. Meanwhile, mega infrastructure projects could jump-start investment, but they may not create all that many jobs. Flummoxed experts are asking themselves: what else can the government do? One idea that has kindled a lot of interest is to give people consumption coupons.
The debate on consumption coupons surfaced soon after the announcement of the 4 trillion yuan (HK$4.54 trillion) stimulus package on November 9. The reasoning behind the concept is easy enough to understand. During a severe economic downturn, consumers would save most of the proceeds from tax cuts, subsidies or rebates, defeating the purpose of those measures.
If, however, they received consumption coupons that were valid only for a limited period, they would be more likely to go shopping. Japan, South Korea and Taiwan have implemented coupon schemes in the past. A similar scheme, however, may be more difficult to implement in mainland China, for reasons peculiar to the nation.
Beijing seems to have a compelling case to issue consumption coupons at this time. First, mainland consumers have less confidence in the country's social safety net compared with their regional counterparts, and may resort to more precautionary savings as the uncertain economic outlook continues. Second, the government's initial measures to boost consumption in the countryside, such as allowing farmers to buy white goods at a discount, appear to have elicited only a lukewarm response because the flood of laid-off migrant workers returning home means less income for rural families. Third, consumption coupons would balance the stimulus package's heavy emphasis on infrastructure projects by giving consumers more of a say on how the trillions of yuan should be spent.
Alas, setting up the mechanism to issue and redeem hundreds of millions of these vouchers will not be easy, especially in mainland China's vast countryside. Take the difficulty encountered in distributing rural aid. It is well known that administrative inefficiencies and corruption have resulted in some villagers getting less than half of the earmarked aid. Handing out consumption coupons could very well run into similar problems. So economists' focus keeps returning to weaving a stronger social safety net. The widely accepted hypothesis on unlocking private consumption on the mainland is that only strong public provision of education, health care and pensions will convince consumers to open their wallets. However, the government faces a highly sceptical public, which has little faith in officials' good intentions, or their ability to deliver the promised benefits.
In a revealing development, many of the millions of migrant workers forced to return to their villages after getting laid off are withdrawing their contributions to 'national' pension plans (which, in fact, can only be accessed in the place where they worked). These early withdrawals, made against government advice, demonstrate that people are willing to give up the portions contributed by their former employers to access the money immediately and manage it themselves. As the saying goes, migrant workers seem to prefer 'a bird in the hand' to 'two in the bush'. This sad example suggests that greater spending on the social safety net is not the silver bullet for boosting private consumption.
