In Depth: Who Really Benefits From Consumption Vouchers?
Boosting consumption has become a key task for China’s local governments and policymakers as they work to repair the hole blown in the economy by the coronavirus epidemic. The idea is that encouraging households to spend more helps increase demand for goods and services, supports employment and bolsters growth in gross domestic product.
Vouchers and coupons that offer discounts on purchases of appliances or on visits to local tourist sites have become an increasingly popular method of enticing consumers to open their wallets. Local governments have taken the initiative, issuing vouchers worth billions of yuan over the past two months to spur spending in restaurants and shopping malls and even on the purchase of big-ticket items like cars. Authorities then dip into their fiscal coffers to compensate retailers and service providers for the discounts. Business have also, independently of the government, handed out coupons, bearing the cost themselves.
Nanjing and Hangzhou in eastern China were among the first to kick off the voucher frenzy in March as the central government lifted lockdowns imposed to halt the spread of the coronavirus and encouraged the country to get back to work. Other cities followed suit with a peak of voucher issuance coming just ahead of the five-day May Day public holiday. Wang Bingnan, a deputy minister of commerce, told a briefing (link in Chinese) on May 8 that more than 170 cities and prefectures had issued coupons with a total face value of more than 19 billion yuan ($2.7 billion).
But debate is now growing over how effective vouchers really are and who is really benefiting. Proponents of the strategy claim they have given a significant boost to consumption, with every 10 yuan’s worth of vouchers generating total spending of 50 yuan to around 100 yuan. Doubters point out that as the total amount of voucher-related spending only accounts for a tiny share of total domestic consumption, they are only of marginal benefit. Others are concerned that they do little to help low-income families who have been hit hardest by the economic fallout of the Covid-19 outbreak.
Quzhou, a city in the eastern province of Zhejiang, said that 18.5 million yuan of vouchers issued by the local government were used by local residents, generating a total spend of 102 million yuan, which means every 1 yuan of vouchers led to total spending of 5.5 yuan, or additional spending of 4.5 yuan. Other cities including Hangzhou, Zhengzhou and Jincheng said spending generated by the use of vouchers amounted to 10 times their face value.
But some analysts said the leverage effect isn’t that significant in many cases. A study carried out in Nanjing from March to May showed that 1 yuan of vouchers generated a total spend of just 2.9 yuan. Guan Lixin, a researcher with a Ministry of Commerce-linked think tank who wrote the report, told Caixin that some cities may be exaggerating the leverage effect because they are taking into account spending driven by coupons offered by businesses.
The aggregate effect of vouchers and coupons is limited because the consumption they trigger accounts for a tiny share of overall spending, said Xu Qiyuan, a researcher with the Chinese Academy of Social Sciences (CASS), another state-backed think tank. Assuming 1 yuan of vouchers leads to a total spend of 2 to 3 yuan, that would only amount to “tens of billions of yuan” of consumption, yet government data (link in Chinese) showed that domestic retail sales in April alone were 2.8 trillion yuan.
While government subsidies and aid in many countries have focused on helping those most in need, such as the unemployed and low-income households, via cash or welfare payments, in China, the focus of the voucher initiative has been on supporting businesses.
Sectors that suffered the most during the Covid-19 outbreak appear to have been the major beneficiaries. Xu from CASS studied the voucher policies of 42 cities and found that 81% distributed vouchers to spend on eating out, and 73% and 48% offered incentives for retailing and tourism. Other sectors that benefited include hotels, culture, car sales, and appliances.
This shows that “consideration for industries and companies is the starting point of the consumer voucher policy,” Xu said.
There are also strings attached to many of the vouchers. Kaifu district in the city of Changsha, Hunan province, issued coupons worth 2 million yuan but they were in the form of fuel card subsidies for consumers who bought cars at local dealerships during the Changsha auto show.
Some analysts have pointed out that the system also has the potential to disadvantage those on low incomes. Most vouchers are distributed via digital payment platforms such as WeChat and Alipay rather than through paper coupons, which may make it difficult for low-income consumers to access as they are less likely to use digital payment. In addition, most vouchers can only be used when spending reaches a certain threshold.
While discounts may support consumer spending, they aren’t doing much to help impoverished and low-income families, or those living in rural areas who may have to spend money to travel to city centers where most vouchers can be spent.
Economists say vouchers and coupons are ineffective in offsetting the drop in income suffered by millions of people furloughed or unable to work during the outbreak. Official data show that the surveyed urban unemployment rate rose to 6% in April, the second-highest reading in available data going back to January 2017. The actual scale of joblessness may be larger as the official figure excludes millions of migrants who leave their hometowns to work. Many of those have been unable to find jobs as factories that closed during the epidemic have not fully recovered.
So far only around 13 cities have made specific provision for low-income families and the value of vouchers targeted at this sector has amounted to less than 200 million yuan, according to Caixin calculations. Many analysts are now calling for local governments to undertake a large-scale rollout of vouchers or cash transfers to those in need.
Compared with the scale of the stimulus and relief conferred on the corporate sector, fiscal subsidies to individuals have been much smaller. As of the middle of April, fiscal stimulus issued by authorities had reached 1.4 trillion yuan, according to calculations (link in Chinese) by Wang Tao, chief China economist at UBS Group AG. But at least 1.1 trillion yuan of that was targeted at the corporate sector in the form of tax and fee cuts, and other financial relief.
Wang expects policymakers will soon unveil a further stimulus package worth around 2.2 trillion yuan, but only 0.2 trillion yuan to 0.3 trillion yuan is likely to be targeted at helping low-income people through direct cash transfers or consumption subsidies.
The concept of consumption vouchers was introduced by the central government during the 2008 global financial crisis to boost spending and support economic growth. This time around, it’s been local governments who have taken the lead and as yet there have been no national-level policies.
That’s meant local governments have had to foot the bill from their own resources and given their deteriorating fiscal positions as tax revenue slumps amid the economic slowdown, they have little spare cash. As a result, the issuance of vouchers is unlikely to become a more permanent fixture.
Contact reporter Guo Yingzhe (email@example.com) and editor Nerys Avery (firstname.lastname@example.org)
Caixin Global has launched Caixin CEIC Mobile, the mobile-only version of its world-class macroeconomic data platform.
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