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Some say the time has come for China to consider cash handouts to boost consumption and stimulate the economy. Photo: Xinhua

China urged to give cash handouts, as its economy and most vulnerable citizens are desperate for a lifeline

  • Zero-Covid strategy is increasingly punishing China’s economy, with no end in sight, and many consumers are hoarding what little savings they have
  • China has resisted doling out the type of ‘extraordinary’ stimulus payments seen in United States and Europe, but some economists say this must change

There are growing calls in mainland China to issue direct stimulus payments to consumers – like those that have been distributed in Hong Kong and the United States – to boost the economy that is being increasingly strained and tested by the nation’s zero-Covid strategy.

Beijing has made repeated efforts to reverse the trend of sluggish consumer spending since the pandemic hit more than two years ago, but economists say that more must be done to get people to open their wallets.

Consumer confidence remains worryingly low in China as the nation unwaveringly sticks to its draconian coronavirus-control measures to stop the highly infectious Omicron variant.

Some local authorities have already turned to their old playbook by issuing coupons to stimulate spending, but the nation’s financial regulators previously warned about the negative impacts of large-scale economic stimulus measures in the West.

‘Consider a contingency plan’: China set for sluggish first quarter growth

Li Xunlei, chief economist at Zhongtai Securities, is among those who say the mainland could take a page out of Hong Kong’s playbook by handing out consumption vouchers.

By his estimations, if central authorities and the nation’s wealthiest 20 per cent contribute a combined 250 billion yuan (US$38 billion) a year, and that money is distributed to the nation’s 280 million lowest-income residents, it could help boost annual consumption spending by 750 billion yuan.

Another option, he said, could be to distribute 1,000 yuan (US$153) to all 1.413 billion Chinese citizens, which he said would be easier and less controversial, despite placing greater financial pressure on the government.

“Consumption vouchers should be issued by the central government … the sooner [they] are issued, the better,” Li said in an interview published by the China Finance 40 Forum think tank on Wednesday.

Similar sentiment was expressed this week by Yang Weimin, deputy director of the Committee for Economic Affairs under the Chinese People’s Political Consultative Conference, the country’s top political advisory body.

Authorities could consider providing more monetary support to those who have lost income due to the outbreaks, he said at a forum held by the state-run China News Service on Monday.

Back in early 2020, China rolled out fiscal and monetary stimulus measures that helped it become the only major economy to expand that year. But the measures were less extensive than those seen in the West, fuelling debate over whether China should follow suit by making direct cash payments to consumers.
Washington has issued three rounds of stimulus payments to Americans, but China’s financial regulators have cautioned that such “extraordinary” coronavirus stimulus policies, including those out of Europe, have ramped up global inflation risks, imposed a larger burden on government budgets, and pushed up the savings rate.

China’s zero-Covid strategy pushes local government finances to the brink

The central government did, however, endorse the local governments’ coupon-style vouchers in 2020. But these meant that consumers might have had to spend more of their own money to use them. As a result, this method could weigh on other types of personal expenditures, according to a note issued on Saturday by analysts at China International Capital Corporation.

“Cash subsidies [in the US] made residents’ disposable income rise instead of decline – both savings and consumption increased, leading to much higher consumer demand while also helping to protect personal balance sheets,” the note said.

China’s leadership in December underscored “a contraction of demand” as part of the “threefold pressure” facing the world’s second-largest economy, though the country is also trying to rely more on its domestic market – i.e. internal circulation – under an inward-looking “dual-circulation” strategy.
However, retail sales, a key gauge of the nation’s consumption, fell by 3.5 per cent in March – the first drop since August 2020 – as China stuck to its “dynamic zero-Covid” policy to battle the country’s worst wave of infections since what was seen in Wuhan more than two years ago.
The most straightforward measure [to boost consumption] is to give money to ordinary people, especially low-income families
Huang Yiping, Peking University
“Restrictions on economic activities … including strict citywide lockdowns, have substantially impacted individual income,” said Huang Yiping, an economics professor at Peking University, during last week’s Boao Forum for Asia.

He warned that the weakening consumption will pummel the profits of companies and take a heavy toll on investments.

“The most straightforward measure [to boost consumption] is to give money to ordinary people, especially low-income families,” he said.

But even if China hands out cash, the people’s propensity to spend that money is likely to be much lower than in the US, due to underlying structural issues, according to Max Zenglein, chief economist at the Mercator Institute for China Studies (Merics), a German think tank.

What stimulus measures did China use to combat the economic impact of the coronavirus?

“As long as there is no prospect of a change in the Covid strategy and these ever-looming lockdowns, I think it’s going to be really difficult to deploy any of the other lessons for cash handouts or vouchers that other countries or areas have made,” Zenglein said.

Beijing municipal authorities announced earlier this month that more than 300 million yuan worth of consumption vouchers would be distributed during the April-September period, but these are mostly akin to discount coupons, with strings attached – different from the vouchers issued in Hong Kong.

Still, other Chinese cities have jumped on the bandwagon, including the local governments in trade hubs Shenzhen and Ningbo, which announced on Wednesday that they would grant vouchers worth 500 million yuan and more than 300 million yuan, respectively.

I don’t need consumption vouchers, regardless of what format, because I cannot afford to consume
Huang Weijie, Guangdong clothing vendor

The moves came just ahead of the five-day Labour Day national holiday that starts on Saturday and is typically an important sales period.

Wendy Liu, operations manager at a foreign-invest company in Shenzhen, said she might use the vouchers when buying some daily necessities, to save a little money.

“But I will not spend more because of the consumption coupons, since my income has stagnated in the last two years, and I have to save more cash for mortgage and education payments,” she said.

And Huang Weijie, a clothing vendor in Guangdong who is currently pulling in less than 100 yuan a day due to the economic downturn, said: “I don’t need consumption coupons, regardless of what format, because I cannot afford to consume.”

Additional reporting by Harvey Kong

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