Editor’s note: Shen Jianguang is the chief economist of JD.com. The article reflects the opinions of the author and not necessarily the views of CGTN.
A new COVID-19 outbreak has spread rapidly since March, affecting China’s production, trade, logistics and express delivery while reducing demand and consumption. How to quickly reverse falling consumption has become a central policy question as the Chinese government grapples with the latest wave of economic downturn. However, consumption voucher policies are rarely mentioned. In some ways, the extensive use of consumer vouchers at home and abroad has shown that such policies have a significant effect in reversing the decline in consumption in the short term and should be considered by policy makers.
It’s time to relaunch consumption
The fall in household consumption caused by the coronavirus pandemic has become a major economic risk. Data from the National Bureau of Statistics showed that the growth rate of China’s fixed asset investment and industrial value added in March was lower than in January and February. It was while the growth rate of total nominal retail sales of consumer goods fell to minus 3.5% year on year in March, the lowest since May 2020. By sector, except for the food, beverages and drugs, most categories fell simultaneously, and the growth rate of retail sales of gold and silver jewelry, apparel, household appliances, petroleum products, cosmetics, necessities and automobiles fell more than 10% from January to February. Additionally, restaurant revenue fell to -16.4% YoY, reflecting the huge impact on contact and aggregation consumption.
On the one hand, it has been affected by the COVID-19 epidemic. Since the new wave of COVID-19 outbreaks, measures such as city lockdowns and road closures have disrupted large-scale product transportation and distribution. On the other hand, employment pressure is increasing. Therefore, there is an urgent need to stabilize the macroeconomy, to reverse market expectations as soon as possible.
A basic option
There are many successful cases of consumer stimulus policies in China and abroad, most of which use consumer coupons as a basic policy option. Abroad, the “food stamp” program has become routine policy in the United States. The first “food stamp” program of the period began in May 1939. The program ran for four years, with a total of 20 million beneficiaries and a cost of $262 million. At its peak, the program benefited 4 million people. Additionally, in August 2020, just after the start of the pandemic, the UK Treasury launched a month-long half-price meal discount scheme. The effort provided restaurant grants for residents with a cap of 10 pounds ($12.5) per person. Passenger flow in high streets and shopping centers has increased sharply under the plan, giving a direct boost to the UK retail sector.
At the national level, research of 36 cities that had implemented consumption voucher plans up to April 18, 2020, showed that the multiplier effect (tied consumption amount / consumption voucher cancellation amount) was mainly distributed between 3.5 and 17 times. A Hong Kong 2021 consumer voucher plan has also significantly boosted local consumption in the short term.
After the subprime crisis in the United States in 2008, China launched a policy of “household appliances and cars in the countryside”. The policy used financial funds as support and directly subsidized specific people and goods, basically like issuing consumer vouchers. As a result, the growth rate of rural consumption in 2009 was faster than that of cities for the first time since 1987. Annual rural consumption exceeded 4 trillion yuan, an annual increase of about 15.5 %. Data from the Ministry of Commerce showed that sales of household appliances in the countryside accounted for 10% of retail sales in rural areas in 2011. During the implementation of the policy, each rural family purchased more than an average household appliance.
Special anti-epidemic treasury bonds
In summary, the need for a voucher policy is paramount. We may consider issuing 500 billion yuan ($75.66 billion) of special anti-epidemic treasury bonds to support the implementation of a consumer bond policy.
In terms of specific operation, a number of national consumer vouchers can be issued initially by referring to the Hong Kong experience. It is to stimulate national consumption. Second, focus on targeted investments. Increase targeted assistance to people in need, consumers in rural areas and micro, small and medium enterprises. Also focus on sectors such as catering and tourism while encouraging the exchange of old cars and household appliances for new ones. Third, strengthen digital technology empowerment and business subsidies while supporting new entities to boost the development of small and medium enterprises. Also optimize the design of the voucher policy and improve the accuracy of multiplier effects.