China audits reveal consumption vouchers did not work and were misused, as cash handouts remain elusive
- Beijing has steadfastly refused to resort to more aggressive and risky stimulus measures that many in the market, and in society at large, are calling for
- Provincial audits are coming in as China’s leadership enacts new plans to make goods cheaper, but analysts contend more needs to be done to raise income levels
Several Chinese provinces have uncovered that local consumption vouchers issued in recent years were not only misused, they did little to increase spending – revelations that seem to undermine Beijing’s refusal to give out cold, hard cash.
In Guangdong, China’s top provincial economy bordering Hong Kong, auditors found overly high thresholds for the use of vouchers, small discounts, and weak promotional efforts.
The eastern province of Shandong reported chaotic management of consumption-voucher distribution, and data was inexplicably missing, according to its audit report released last week.
“Some counties arranged a budget of 10,000 yuan (US$1,400), but the actual expenditure was only 935 yuan, and it benefited only three merchants,” the Shandong government revealed, highlighting the vouchers’ limited impact in poorer regions.
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In tropical Hainan province, more than 73 per cent of the 8 million yuan worth of distributed consumption vouchers had not been written off, and four cities failed to distribute 28.12 million yuan worth of vouchers, according to its audit report on July 20.
Meanwhile, two cities in east China’s Zhejiang province profited from financial subsidies of 19.21 million yuan by misapplying consumption vouchers, according to a governmental audit report on July 26.
Several Chinese cities rolled out consumer vouchers during the three-year pandemic – moves intended to shore up spending in a time rife with lockdowns.
However, the recent audit disclosures serve to deepen concerns, particularly as analysts do not expect Beijing to roll out stronger stimulus policies later this year.
“The amount of consumption vouchers distributed by these local governments has a very, very limited effect compared with the size of China’s 100-trillion-yuan economy,” said Larry Hu, chief China economist at Macquarie Group.
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More effective stimulus policies should directly target residents’ employment expectations, as well as their incomes, according to Hu.
“Yet, Beijing is limited in what it can do in this aspect,” he said, pointing to the possibility of “more macro stimulus … in the real estate sector”.
But despite fresh signals from leadership at recent Politburo meetings, it will take time for the property sector to recover, and for it to stimulate consumption, Hu added.
The National Development and Reform Commission decreed that authorities must ensure that first-time homebuyers, and those who seek to improve their housing conditions, are supported.
It’d be hard for the market to see stronger consumer stimulus in the second half of the year
And in an attempt to “stabilise big-budget consumption”, China’s top economic planner also banned local-level governments from issuing further car-purchasing restrictions that had been widely imposed to cut carbon emissions.
“The policies introduced [on Monday] are more about increasing the convenience of consumption,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank.
“However, these are not the main obstacles to consumption, but rather the households’ expectations of employment income in the long term.”
Most big-budget consumption by Chinese residents, including cars and big home appliances, is linked to real estate, so support for real estate is key to stimulating consumption in other areas, Ding said.
“I think it’d be hard for the market to see stronger consumer stimulus in the second half of the year – changing residents’ incomes is the crux of the matter, but there’s not much more Beijing can do about this,” Ding added.
The intended effects of consumption vouchers, whether they come from Beijing or local-level policies, continue to be mitigated by unchanging income expectations, and this makes consumers more frugal, Ding said.
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The Economist Intelligence Unit (EIU) was pessimistic about whether these new policies will significantly boost private consumption, according to its latest report on Tuesday.
The EIU said weak spending sentiment will remain a major drag on China’s economic recovery due to widespread uncertainty about future income and employment opportunities.
“More decisive action would be needed to provide a substantial boost for consumption, such as greater consumer subsidies or household-focused fiscal transfer,” the EIU said.
Last year, China’s draconian zero-Covid policy, combined with turbulent geopolitics, severely weakened consumer confidence – to the degree that consumption accounted for only 32.8 per cent of China’s gross domestic product growth in 2022, down from 54.5 per cent in 2021.
After the easing of Covid restrictions late last year, Beijing has been faced with a succession of worrying economic data, including a lower-than-expected 6.3 per cent economic growth in the second quarter, 7.9 per cent drop in real estate investment from a year earlier, and a record-high youth jobless rate of 21.3 per cent in June.
