Caixin
Mar 24, 2020 04:26 AM
ECONOMY

Should China Give a Month’s Purchasing Power to 1.4 Billion People?

Chinese political advisor suggests giving each citizen 2,000 yuan as a pandemic subsidy. Photo: VCG
Chinese political advisor suggests giving each citizen 2,000 yuan as a pandemic subsidy. Photo: VCG
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Politicians in the world’s two largest economies are debating the idea of making direct cash payments to help people weather the Covid-19 pandemic, but whether and how such measures could be implemented are still in question.

The Chinese government should consider giving each citizen 2,000 yuan ($282) as a pandemic subsidy for personal consumption, according to a proposal submitted Sunday by Zhu Zhengfu, a member of the Chinese People’s Political Consultative Conference, a political legislative advisory body.

Zhu, also vice chairman of the All China Lawyers Association, said such payments would be a lifeline to the needy as some small and medium-sized businesses have been forced to close because of the pandemic. The proposed 2,000 yuan is equivalent to the average person’s monthly consumption spending last year.

The idea is similar to economic stimulus proposals being debated in the U.S., where Treasury Secretary Steve Mnuchin wants $1,000 checks to every American adult, and some lawmakers proposed as much as $2,000 in monthly payments per person for the duration of the crisis.

A vote to advance a massive U.S. coronavirus stimulus bill including the payments failed Sunday night in the Senate as Republicans and Democrats couldn’t agree on the details of the aid package.

Direct payments could also face obstacles in China as they would be expensive and may not help small to medium-sized businesses that much, some economists said.

The cash payments to China’s 1.4 billion people would cost the central government at least 2.8 trillion yuan, or about 10% of China’s annual budget, estimated Liu Qiao, dean of the Guanghua School of Management at Peking University. Even a modest increase in the deficit-to-GDP ratio would not fully cover such a big expense, Liu said.

Payments to everyone regardless of income also raises a social justice issue, Liu said. He suggested a subsidy of 1,000 yuan to low-income groups and every resident of Hubei province, where the outbreak hit the hardest.

China’s retail sales in the first two months fell 20.5% year on year, with restaurant revenue down more than 40%, according to data from the National Bureau of Statistics. Some local governments, including Nanjing, Jinan and Ningbo, have introduced vouchers to residents to encourage consumption.

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Hong Kong said last month that it would hand out HK$10,000 ($1,280) to about 7 million permanent residents over the age of 18 to help boost spending and ease financial burdens.

China took similar steps in the wake of the financial crisis in 2008. In January 2009, the government of the eastern city Hangzhou gave 100 million yuan of vouchers to low-income households, retirees and students for purchases of groceries, electrical products such as appliances and travel. Chengdu also handed out vouchers to selected residents.

Although the central government didn’t distribute cash or vouchers nationwide, its “send automobiles to the countryside” campaign as well as rebates offered to rural residents for buying refrigerators and other appliances aimed to boost domestic consumption at a time when foreign demand for China’s manufacturing exports slumped.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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