CHINA URGED TO ISSUE DIRECT CASH HANDOUTS
Authorities should distribute stimulus payments to boost consumption as the economy is strained by tough zero-Covid strategy, economists say
There are growing calls on the mainland to issue direct stimulus payments to consumers – like those that have been distributed in Hong Kong and the United States – to boost an economy that is being increasingly strained and tested by the government’s zero-Covid strategy.
Beijing has made repeated efforts to reverse the trend of sluggish consumer spending since the pandemic hit more than two years ago, but economists say more must be done.
Consumer confidence remains low as the nation unwaveringly sticks to its draconian coronavirus control measures.
Some local authorities have already turned to their old playbook by issuing coupons to stimulate spending, but the nation’s financial regulators previously warned about the negative impact of the large-scale economic stimulus measures in the West.
Li Xunlei, chief economist at Zhongtai Securities, is among those who say the mainland could take a page out of Hong Kong’s playbook by handing out consumption vouchers.
By his estimations, if central authorities and the nation’s wealthiest 20 per cent contribute a combined 250 billion yuan (HK$299 billion) a year, and that money is distributed to the country’s 280 million lowestincome residents, it could help boost annual consumption spending by 750 billion yuan.
Another option, he said, could be to distribute 1,000 yuan to all 1.41 billion mainland citizens, which he said would be easier and less controversial, despite placing greater financial pressure on the government.
“Consumption vouchers should be issued by the central government … The sooner [they] are issued, the better,” Li said in an interview published by the China Finance 40 Forum think tank on Wednesday.
Similar sentiment was expressed this week by Yang Weimin, deputy director of the Committee for Economic Affairs under the Chinese People’s Political Consultative Conference, the country’s top political advisory body.
Authorities could consider providing more monetary support to those who had lost income due to the outbreaks, he said at a forum held by the state-run China News Service on Monday.
Back in early 2020, the mainland rolled out fiscal and monetary stimulus measures that helped it become the only major economy to expand that year. But the measures were less extensive than those seen in the West, fuelling debate over whether the country should follow suit by making direct cash payments to consumers.
Washington has issued three rounds of stimulus payments to Americans, but the mainland’s financial regulators have cautioned that such “extraordinary” coronavirus stimulus policies, including those out of Europe, have ramped up global inflation risks, imposed a larger burden on government budgets and pushed up the savings rate.
The central government did, however, endorse the local governments’ coupon-style vouchers in 2020. But these meant consumers might have had to spend more of their own money to use them. As a result, this method could weigh on other types of personal expenditures, according to a note issued on Saturday by analysts at China International Capital Corporation.
“Cash subsidies [in the US] made residents’ disposable income rise instead of decline. Both savings and consumption increased, leading to much higher consumer demand while also helping to protect personal balance sheets,” the note said.
The Beijing leadership in December underscored “a contraction of demand” as part of the “threefold pressure” facing the world’s second-largest economy, though the country is also trying to rely more on its domestic market, i.e. internal circulation, under an inward-looking “dualcirculation” strategy.
However, retail sales, a key gauge of the nation’s consumption, fell by 3.5 per cent in March, the first drop since August 2020, as the government stuck to its “dynamic zero-Covid” policy to battle the country’s worst wave of infections since what was seen in Wuhan more than two years ago.
“Restrictions on economic activities … including strict citywide lockdowns, have substantially affected individual income,” Huang Yiping, an economics professor at Peking University, said during last week’s Boao Forum for Asia.
He warned the weakening consumption would pummel corporate profits and take a heavy toll on investments.
“The most straightforward measure [to boost consumption] is to give money to ordinary people, especially low-income families,” he said.
Wendy Liu, operations manager at a foreign-invested company in Shenzhen, said she might use the vouchers when buying daily necessities to save money.
“But I will not spend more because of the consumption coupons, since my income has stagnated in the last two years and I have to save more money for mortgage and education payments,” she said.
Huang Weijie, a clothing vendor in Guangdong who is currently pulling in less than 100 yuan a day due to the economic downturn, said: “I don’t need consumption coupons, regardless of what format, because I cannot afford to consume.”