Coupons sans protectionism

Under pressure to address trade imbalances by boosting domestic demand, China has approved handing out consumption coupons. The measure is free of protectionist overtones like the contentious “buy American” in the US economic stimulus bill.

“The issuance (of consumption coupons) is a special form of action taken under special situations,” Jiang Zengwei, vice-minister of commerce, said at a press conference last week, signalling Beijing’s approval to the initiative undertaken by several local governments. “It is proper and it is feasible,” he said. “As far as I’m concerned, cities like Chengdu and Hangzhou have seen a boost in local consumption because of the coupons.”

The US stimulus plan has come under intense scrutiny by Chinese economists, concerned about the fate of China’s investments in the United States of America and the prolonged slump in its markets, which has sapped China’s exports. Many have criticised the plan’s protectionist content, including the “buy American” clause as one hurting the interests of the US’s trade partners. “The developing countries should have the right to take similar actions to protect their interests,” Mei Xinyu, researcher with the Chinese Academy of International Trade and Economic Cooperation, argued in the China Business Journal.

But Beijing’s official response has tried to draw a line of comparison by pledging that China will not implement “buy China” polices in its attempt to reverse the economic downturn. At the same press conference last week, Jiang Zengwei appealed to retail giants Wal-Mart and Carrefour to “go down” to the Chinese countryside and broaden their networks by servicing the country’s large rural population. It also pledged a series of measures to boost rural consumption, like the development of rural retail networks, called the 10,000 county and village markets, and subsidies for purchase of electronic goods.

Local governments however seem to have taken matters in their hands already, deploying unusual means to deliver on Beijing’s call to boost domestic consumption. To encourage the buying spree that usually accompanies Chinese New Year celebrations, last month several localities issued millions of dollars worth of store coupons to persuade inherently thrifty Chinese to go out and spend. In 2007, Chinese peasants derived nearly 40 per cent of their annual incomes from wages earned in factories and remitted back to the countryside. Economic experts point out that only expanded social safety net could unlock private consumption in a country like China which is reputed for its tradition of frugality and high savings. If Chinese people do not need to save so much for healthcare, education and pensions, they might be easily persuaded to loosen their wallets, they argue.

For example, in 2005 only 32.5 per cent of the population in the city and the countryside was covered by any type of pension scheme. Wang Deming, researcher with the academy’s Institute of Population and Labour Economics, says that the guarantee of social insurance for each new Chinese person would result in an increase of direct consumption by 153 US dollars in the cities and 70 dollars in the countryside. “The role of stronger social safety net for boosting private consumption is undeniable,” he says. — IPS