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CHINA'S SUBSIDY PROGRAM AIMS TO BOOST RURAL CONSUMER SPENDING


The Chinese government has expanded a household appliance subsidy program to encourage rural consumer spending from three provinces to nationwide this month. Washing machines, motorcycles, personal computers, water heaters and air conditioners were also added to the list of products that can be purchased at a discount.


The Chinese government has expanded a household appliance subsidy program to encourage rural consumer spending from three provinces to nationwide this month. Washing machines, motorcycles, personal computers, water heaters and air conditioners were also added to the list of products that can be purchased at a discount.

The household appliance subsidy program was first launched by the Chinese government in December 2007 in the three agricultural provinces of Shandong, Henand and Sichuan, as well as Qingdao City. A 13 percent subsidy was only offered to three household appliances: color TV sets, refrigerators and cell phones. The 13 percent subsidy was split 80-20 between the central and local governments respectively. Prices were capped at 2,000 yuan for a color TV set, 2,500 yuan for a refrigerator and 1,000 yuan for a cell phone. Each rural household was only allowed to buy two items from each category and can claim the subsidies at their local township government finance agencies in 15 working days.

The program was supposed to be concluded in May 2008, but was continued due to the renewed focus on boosting domestic consumer demand. In December 2008, the government expanded the program to 14 provinces, autonomous regions and municipalities and added washing machines capped at 2,000 yuan to the list. This first expansion covered 53 percent of the rural population and was set to run until 2012. As mentioned above, the program was further expanded this month so that all rural provinces can participate in the program and more products are included in the list.

As global demand plunges amid the global economic downturn, export-oriented countries such as China have been focusing on boosting domestic consumption to help prop up their ailing economies.

The Chinese government is particularly looking at the largely untapped rural market to counteract falling export figures. The government hopes that the subsidy program will boost rural sales of consumer goods by 2.5%. And with domestic consumption only at 40 percent of China’s gross domestic product (compared to 70 percent in the U.S.), it hopes that increasing rural consumption will increase  overall domestic consumption and, consequently,  help maintain the country’s economic growth.

The Chinese government also hopes that by making it easier to get modern, urban amenities in rural areas, it will have the overall effect of improving their quality of life. China’s rural areas have usually  missed out on the country’s fast-paced economic development. Rural unrest have been a pressing issue for the country, as people from the countryside complain that they have been ignored and left out of the increasing wealth of their urban counterparts. In addition, deteriorating rural conditions have caused millions of Chinese peasants to move to urban centers such as Beijing and Shanghai to look for work, where they are usually discriminated against.

The subsidy program faces many skeptics, who argue that the program does not address the fundamental problems of rural areas, such as persistently low incomes and insecure social security services. Moreover, skeptics of the subsidy program argue that the costs of purchasing, maintaining and powering these household appliances are still too high for many rural people. For example, the average income of  rural workers is $690, while the average income of urban workers is $2,290. Thus, rural consumers have little extra money to use towards household appliances. In addition, they argue that decreasing remittances by urban workers to their rural relatives will hamper the growth of rural consumer spending. Indeed, it is estimated that over 20 million migrant workers from the countryside have lost their jobs in the city. Consequently, rural people will have less money to spend towards household appliances.

Despite the skeptics, the Chinese government remains optimistic about the subsidy program. Moreover, it is hoped that the renewed focus on the potential of the rural domestic market will also bring significant improvements in the quality of life of the people in these areas.

Source: www.AsiaEcon.org
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Source: www.asiaecon.org |


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