Coronavirus: China urged to hand out consumption vouchers to help local governments, boost spending

Economists say issuing cash vouchers directly to citizens is the quickest way to stimulate growth from the demand side
Beijing’s zero-Covid policy has hammered spending in China and local government finances are being stretched thin

China's economic recovery

Mia Nulimaimaiti

Published: 3:31pm, 22 Nov 2022

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China’s central government should issue consumer vouchers to ease financial pressure on local authorities and revive demand in its slowing economy, economists say.

Beijing’s zero-Covid policy has hammered consumption in the world’s No 2 economy and local government finances have been stretched thin by the burden of maintaining the hardline coronavirus controls.

Economists say issuing cash vouchers directly to citizens is a quick way to stimulate growth.

“It is now an immediate priority to lift the economy from the demand side,” said Mao Zhenhua, director of the Institute of Economic Research at Renmin University of China, at last week’s China Macroeconomic Forum.

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Mao said the major shortfall in China’s economy is a serious lack of consumption, which has been constrained by uncertainties induced by the central government’s zero-Covid policy. People are less optimistic about the future and, as a result, more inclined to save, he said.

Beijing should issue consumer vouchers of 5,000 yuan (US$700) to every resident, including minors, in the form of e-currency, instead of the traditional merchant discount coupons.

“Many of the consumer vouchers we mentioned before are actually discount coupons from merchants, they don’t have a cash value,” Mao said.

He said the central government must do more to support the economy, especially as it has more room for fiscal spending than local authorities.

Central fiscal expenditures are important because the local finances are all in a tight situation right now, and even if there are some local governments that have a fiscal surplus, I don’t think they are that generous

Mao Zhenhua

Some local governments across China have already experimented with prepaid vouchers to boost consumer spending, though the results have been limited.

“Central fiscal expenditures are important because the local finances are all in a tight situation right now, and even if there are some local governments that have a fiscal surplus, I don’t think they are that generous,” Mao said.

The amount would not be a huge burden for the Chinese government and would be below what has been issued in other countries, Mao said.

Shen Jianguang, chief economist at Jingdong Technology Group, said issuing consumer vouchers would have an instant impact on recovery.

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“Just relying on local governments and enterprises to voluntarily issue consumption vouchers is definitely a relatively small amount,” Shen said at the same event.

“Only the central government now has the fiscal space to issue at least 5,000 yuan for the whole population at once.”

Shen said consumer vouchers would have a very significant effect on the supply side by allowing self-employed people and businesses hit by the pandemic to resume operations, alleviating lay-offs and further increasing tax revenue for local governments.

Consumer spending accounted for 65.4 per cent of the country’s economy last year, according to the Chinese Bureau of Statistics, but it has been severely curtailed by the pandemic this year.

China’s retail sales fell by 0.5 per cent in October, retreating into negative territory for the first time since the two month lockdown of Shanghai, due largely to outbreaks across the country.

Some Chinese cities have already introduced vouchers, such as the southern tech hub Shenzhen.

It issued discounted consumer vouchers in the form of e-money in May through consumer services platform Meituan, but they can only be used to receive a discount on an existing purchase.