Desperate measure: China gives spending vouchers to citizens

Communist Party officials in Chinese provinces and cities are issuing “shopping vouchers” to citizens to encourage greater consumer spending as an antidote to the slowdown that has gripped the global economy.

In Hangzhou, in the vibrant Zhejiang province in China’s eastern coast, the city government handed out 100 million yuan (about $15 million) in “dated consumer vouchers” last month to about 5,00,000 city residents, including retired people and primary school children.

These vouchers, each of which have a face value of 20 yuan and expire by April 30, can be used at local supermarkets and provisions stores. Additionally, civil servants in the city will receive up to 10% of their salary as consumer vouchers.

Similarly, in Chengdu, in Sichuan province in China’s south-western region, the city government gave away shopping vouchers amounting to 37.9 million yuan (about $5 million) to low-income households. Other cities are handing out “travel coupons” to boost the domestic tourism industry.

China’s export-driven economy has been dragged down by the recession in its primary markets, and Chinese leaders have been coming up with inventive ways to prop up the economy by getting Chinese citizens, who are typically fiscally conservative, to unloosen their purse-strings and start spending. On February 1, a nationwide programme was launched under which home appliances were offered to rural households at substantial discounts.

The results of the ‘voucher handouts’ appear to be encouraging. In Hangzhou, coupons worth an estimated 44 million had been used up in under a fortnight, local officials claimed. And in Chengdu, virtually all the shopping vouchers that had been handed out had been used up.

China’s vice-minister for Commerce Jiang Zengwei has said that issuing spending vouchers would be an effective way to encourage Chinese people to spend. One of China’s leading economists, Zhang Weiying, even suggested that the Chinese government hand out 10,000 yuan (about $1,500) to every man, woman and child in China to get them to spend and save the economy.

China’s ‘consumer stimulus mechanism’ is very similar to a “dated spending voucher” plan that Economics Nobel laureate Robert A Mundell had recommended for the US economy during a visit to Hong Kong last week. Mundell had said that spending vouchers work like “pre-paid gift certificates, and retailers can use them as a tax credit.”

The advantage of handing out spending vouchers, rather than cash, is that it won’t add to money supply and stoke inflation, he had said.