In Depth: Who really benefits from China’s consumption vouchers?May 22, 2020
Boosting consumption has become key for local governments and policymakers in China as they work to repair the hole blown in the economy by the new coronavirus. The idea is that encouraging households to spend helps increase demand for goods and services, supports employment, and bolsters growth in gross domestic product.
Vouchers and coupons for discounts on purchases of appliances or visits to tourist sites have become an increasingly popular way of enticing consumers to open their wallets.
Local governments have taken the initiative, issuing vouchers worth billions of yuan over the past two months to spur spending in restaurants and shopping malls and even on the purchase of big-ticket items like cars. Authorities then dip into their fiscal coffers to compensate retailers and service providers for the discounts. Business have also, independently of the government, handed out coupons, bearing the cost themselves.
Nanjing and Hangzhou in eastern China were among the first to kick off the voucher frenzy in March as the central government lifted lockdowns and encouraged the country to get back to work. Other cities followed suit, with voucher issuance peaking just ahead of the five-day May Day public holiday. Wang Bingnan, a deputy minister of commerce, told a briefing on May 8 that more than 170 cities and prefectures had issued coupons with a total face value of more than 19 billion yuan ($2.7 billion).
But debate is growing over how effective vouchers are and who is benefiting. Proponents of the strategy claim the vouchers significantly boost consumption, with every 10 yuan’s worth of vouchers generating about 50 yuan to 100 yuan of spending. Doubters note that the amount of voucher-related spending accounts for only a tiny share of total domestic consumption, making them of marginal benefit. Others are concerned that they do little to help low-income families who have been hit hardest by the fallout from the COVID-19 outbreak.
Quzhou, a city in the eastern province of Zhejiang, said that 18.5 million yuan of vouchers issued by the local government was used by residents, generating a total spend of 102 million yuan, which means every 1 yuan of vouchers led to total spending of 5.5 yuan, or additional spending of 4.5 yuan. Other cities — including Hangzhou, Zhengzhou and Jincheng — said spending generated by vouchers amounted to 10 times their face value.
But some analysts said the leverage effect is not that significant in many cases. A study in Nanjing from March to May showed that 1 yuan of vouchers generated a total spend of just 2.9 yuan. Guan Lixin, a researcher with a Ministry of Commerce-linked think tank who wrote the report, told Caixin that some cities may be exaggerating the leverage effect because they take into account spending driven by business coupons.
The aggregate effect of vouchers and coupons is limited because the consumption triggered accounts for a tiny share of overall spending, said Xu Qiyuan, a researcher with the…