Should China issue consumption coupons?

The world economies have rushed to release policies to spur economies battered by the global financial crisis. Some have handed out so-called "consumption coupons", or purchase vouchers, to the public to encourage spending. The Japanese government has given every Japanese citizen coupons worth 15,000 yen, about 1,050 yuan, while China's Taiwan has provided coupons worth about 750 yuan to each local resident. The US cut taxes, a de facto subsidy for its residents.

China's Chengdu, capital of Sichuan province, has led the nation by issuing purchase vouchers worth 100 yuan to 380,000 low-income local residents. Can China stimulate domestic demand by issuing consumption coupons to its citizens?

Yes

Fu Yong, financial commentator:

Purchase vouchers help stimulate consumption. China will launch a scheme providing low-priced household electronic appliances to the countryside in February. If every rural resident gets an 800-yuan coupon, it will encourage purchasing such products, bringing a consumption boom in rural areas. Even if some coupon holders sell the coupons and put the money in a bank, it still increases people's wealth and adds to farmers' potential purchasing power. The coupons are a way for the public to share the dividends of the country's 30 years of economic growth.

Chen Wanzhi, vice-chairman of Chongqing municipal people's political consultative conference:

China's personal savings rate is high because future uncertainties, such as low income and lack of an effective, inclusive social security net keep people from spending. Increasing subsidies for low-income earners and raising pension levels for retirees will increase income, but to limited effect. The central government should use 1 trillion yuan of its 4 trillion yuan stimulus package to issue purchase vouchers to people. The coupons could be used for consumption, but coupon holders should not be allowed to exchange the coupons for cash.

The government should issue training coupons for farmers moving to cities to help pay for training in qualified training agencies. The government can select training institutions based on performance and those institutions can exchange the coupons for cash with the government.

No

Wang Qing, chief economist of Morgan Stanley Greater China:

Consumption coupons do not make sense in China. China's economic slow-down is caused by falling external demand and decreasing investment in the domestic real estate sector. China needs to stimulate domestic demand to make up for weakening exports and real estate investment.

But China will not stimulate the domestic economy by issuing consumption coupons. China is facing oversupply problems in sectors such as steel, raw materials, cement and machinery. Consumption coupons would not help increase demand for those commodities.

Issuing the coupons would also be logistically problematic.

Consumption coupons are in essence government subsidies to increase people's income and might as well be called "income coupons".

Wang Jian, research fellow of the National Development and Reform Commission:

China may not be financially able to issue such coupons considering its massive 4 trillion yuan stimulus package. Raising the minimum income level for the poor is a more appropriate policy than directly issuing consumption coupons.

China is facing a major wealth gap. If the poor people need to be subsidized by such consumption coupons, then why should the rich be also subsidized?

(China Daily 01/19/2009 page2)