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Source: www.asiaecon.org |

CHINESE CITY BOLSTERS SCANT CONSUMER SPENDING WITH FREE VOUCHERS


Saint Nick arrived early this year in the small coastal city of Hangzhou, bringing with him a bag full of shopping vouchers hoping to stimulate consumption and avert the economic downturn that is threatening to ruin a lot more than just Christmas this year.


Saint Nick arrived early this year in the small coastal city of Hangzhou, bringing with him a bag full of shopping vouchers hoping to stimulate consumption and avert the economic downturn that is threatening to ruin a lot more than just Christmas this year. 

Shou Xuejun, a finance official in Hangzhou, was giving the opportunity to hand out shopping vouchers worth nearly $30 to the elderly residents of his town.  Since the beginning of January the program has stretched to include more than a fifth of the population in Hangzhou. And as hundreds of thousands more vouchers are being printed and issued, the goal to stimulate purchasing looks optimistic. 

Chen Jue, 87, well-demonstrated the attitude of the average recipient, “Can these vouchers really buy things?” she asked, amazed. “The government is very good to us!”  She then proceeded to explain what she would purchase with her voucher.

These reactions give hope that even the normally frugal Chinese consumer will increase their purchases due to the stimulus vouchers.  Historically, China has relied on exports to foreign countries that have a much higher tendency to consume than that of Chinese citizens who save more than one-fourth of their total incomes.

Shou believes this discrepancy is due to “the underdevelopment of the social welfare system.  [A] problem [that] cannot be solved in the short term.”  Chinese citizens are forced to save more money for old age and medical expenses than the average westerner, especially Americans.

Chinese consumption accounts for only 35 percent of GDP. This can be compared to the United States, whose domestic consumption claims two thirds of growth.

Creating a social welfare net that gives security to Chinese consumers and encourages consumption, would take years.  And although the market for foreign consumption still exists, exports have been steadily decreasing due to the global market downturn.  In February alone exports fell by a record 25.7 percent.

Nevertheless, a $123 billion three-year initiative to deliver basic universal health care and health insurance to nine out of every ten Chinese has been pledged by the government.  But according to Fred Hu, a Goldman Sachs economist who has advised the government on policy, “They really need a sweeping program to set up social security.  That hasn’t happened. It’s still piecemeal measures.”

Hangzhou is not the only Chinese city experimenting with vouchers, although it has not become a nationwide program yet.  Evidence that vouchers can promote consumption by increasing spending has not been proven and many economists think that they may simply be used in lieu of cash, not in addition.

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


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