China’s coronavirus stimulus opts for coupons in a world awash with cash handouts — why?

China’s coronavirus stimulus opts for coupons in a world awash with cash handouts — why?


Updated

April 23, 2020 05:04:25

China is no stranger to a cashless economy, and that now extends to its coronavirus economic recovery.

Key points:

  • China so far has avoided a direct cash stimulus in the wake of coronavirus
  • Local governments have stepped in, issuing coupons that only work for specific purchases
  • Both Australia and China run schemes that direct people to spend in specific ways

As part of recovery plans, local city governments have been issuing citizens with digital coupons that will help them buy groceries or takeaway food, but there are two catches: some have short expiry dates, while others incentivise people to spend a certain amount (like a two-for-one deal).

Coupons have been appearing on Chinese smartphones and tablets since late March, and at the last count, more than 30 cities have created coupon schemes.

In Wuhan, the city where coronavirus originated, the local government has distributed $US71 million ($111.9 million) worth of ‘consumption coupons’, which equates to about $6 per citizen.

These are generated on popular Chinese point-of-purchase apps such as WeChat and Alipay, with the coupons only redeemable for certain purchases, such as buying groceries, or dining at restaurants.

Further afield, cities such as Guangzhou and Changsha are giving coupons ranging from a few hundred to two thousand dollars to help people purchase a car.

However, compared to stimulus measures passed in North America, Europe and other parts of Asia, China’s efforts so far appear modest.

In late March, the US passed a $US2 trillion stimulus package, which gives individuals earning up to $US75,000 a year a $1,200 stimulus cheque (about $1900), alongside financial assistance for hard-hit businesses of all sizes.

In Europe, Germany passed a stimulus package worth €750 billion ($1.3 trillion), with small businesses and the self-employed threatened with bankruptcy eligible to access direct payments of up to €15,000 ($25,700).

Meanwhile, Japan — the world’s third-largest economy — approved a ¥118.3 trillion ($1.7 trillion) package in April that will give all Japanese citizens 100,000 yen each — about $1,500.

Given this global context, why is China opting for coupons, and are people happy with them?

What the experts are saying about coronavirus:

A short history of coupon-nomics

After the Chinese Communist Party (CCP) assumed control of mainland China in 1949, coupons were issued for goods such as cloth and grain.

Contrary to common assumptions, post-war Chinese rationing was done not to save goods for the Chinese, but for export, according to Antonia Finnane, an honorary professorial fellow in Chinese History at the University of Melbourne.

“In the early 1950s, the People’s Republic of China had just been established: It was a socialist-command economy where they wanted to organise production and consumption,” Professor Finnane said.

“[The Government] figured that production should be profitable, and they didn’t want people to consume all the profits.”

Back then, Chinese production for export was tightly controlled so the Mao Administration could fund its bid to make Chinese industry catch-up to the powerhouses at the time — the US and UK.

In the decades since, China has long surpassed Chairman Mao’s industrial ambitions. Today’s coupons, used to drive domestic consumption, is indicative of this.

Wei Li, an expert in Chinese business and sustainability at the University of Sydney, told the ABC this new coupon rollout reflects the fact that consumption has become China’s new economic centre of gravity, compared to the last time coupons were used after 2008’s Global Financial Crisis (GFC)

“[Coupons] back then [supported] infrastructure in order to maintain economic growth, but this time there’s an emphasis on consumption,” Dr Li told the ABC.

She added the use of coupons, instead of cash, ensures capital goes to the industries that local governments believe need help in coronavirus’s wake, such as tourism, hospitality, or entertainment.

“It only becomes money when you spend it,” Dr Li said.

While anecdotal evidence suggests China’s savings culture necessitates the use of coupons, Dr Li said the practice allows local governments to better meet the specific needs of their cities.

“They’re looking at their own industry demands: some focus on education, others tourism, or restaurants and entertainment,” Dr Li said.

At the official level, these coupons are already having an effect, according to Mao Shengyong, a director at China’s National Bureau of Statistics.

“Judging from Zhejiang Province, Jiangsu Province and other places, the introduction of the consumption coupon policy has played a better role in expanding the consumption of local residents and promoting market activity,” Mr Shengyong said, without citing further evidence.

Your questions on coronavirus answered:

The view from Wuhan

Wuhan’s coupons can apply to restaurants, shopping centres, supermarkets or convenience stores and entertainment activities.

These coupons range from 10–80 yuan with an expiry date and consumers must spend three times the value of the coupon to use it.

Jack He was one of the first Wuhan residents who secured coupons this week.

He spent a 20 yuan ($4.50) coupon at a supermarket for his weekly groceries.

“Restaurant and supermarket coupons are the most popular ones, they are gone within seconds,” he said.

“Although the amount is quite small overall, the motivation behind the policy is good and people can choose what they need accordingly.”

But not everyone has been as fortunate as Mr He.

Fellow Wuhan resident Celia Cao had no luck redeeming any coupons after attempting twice in one week to claim them before they were gone.

“There are lots of restrictions in terms of how to use them and that’s not encouraging at all,” she told the ABC.

Ms Cao said people with limited technology access could miss out on the benefit altogether.

“My parents could never participate [in this initiative],” she said.

On the first day of coupon spending in Wuhan, only 18.6 per cent of coupon consumers were people over the age of 50, local media reported.

However, not all Chinese cities are issuing digital-only coupons; Nanjing has combined e-coupons with printed coupons for those without smart devices.

Stay up-to-date on the coronavirus outbreak

Coupon method implies a ‘lack of trust’

Professor Finnane said the Chinese Government’s use of coupons have an economic function, but also speak to the practices of a paternalistic government.

“I would say the Chinese Government certainly does not trust the broad masses of people with the [stimulus] money,” she said.

“There is this lack of trust that is expressed in the close calibration of the coupons: When to use them, who can use them, and how they’re used.”

Professor Finnane noted there was some resonance between China and Australia, given the Federal Government’s use of compulsory income management schemes for some Centrelink recipients, where they have 80 per cent of their payments placed onto a Cashless Debit Card (CDC), with the remaining 20 per cent wired to their bank accounts.

The cards are designed to prevent recipients — who are mostly Indigenous — from purchasing alcohol, gambling, or taking out cash.

What links both China and Australia in this instance, according to Professor Finnane, is an implicit lack of trust between authorities and the communities that coupons, or quarantined welfare recipients, are designed for.

“The [CDC] absolutely shows a lack of trust,” Professor Finnane said.

“It probably characterises relations between [the Australian] Government and Indigenous peoples over a couple of centuries.”

Unlike Australia’s CDC system, China’s coupon measures are designed to be temporary.

Professor Finnane said China’s coupon system does little to ease its endemic economic inequalities, despite some efforts to preserve some coupons for poorer Chinese.

“More important than not having the app or the phone is not having the money to take advantage of what’s been offered,” she said.

“My feeling is that people will want money to pay rent and medical bills — these coupons are not for those things.”

What you need to know about coronavirus:

Topics:

world-politics,

foreign-affairs,

money-and-monetary-policy,

ethics,

social-policy,

communism,

indigenous-policy,

china,

asia,

australia

First posted

April 23, 2020 04:58:59



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