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How will consumption coupons stimulate economic recovery?
Consumption coupons have been issued in various forms to stimulate consumption and economic recovery
  ·  2020-06-12  ·   Source: NO.25 JUNE 18, 2020

The Beijing Municipal Government recently announced plans to offer coupons worth 12.2 billion yuan ($1.71 billion) to spur domestic consumption severely curbed by the novel coronavirus disease (COVID-19). The first batch of 3 million coupons was issued on e-commerce giant JD.com on June 6. They can be used at participating restaurants and retailers in Beijing as well as for buying products equipped with smart technology.

Yet Beijing is not the first Chinese city to do this. In many cities across China, consumption coupons have been issued in various forms to stimulate consumption and economic recovery.

Coupons issued by companies are often seen during China's shopping festivals, but according to statistics from cities that have already used them, government coupons can create a multiplier effect, in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent. According to the data, a coupon worth one yuan ($0.14) encourages spending a further 10 yuan ($1.4).

By issuing these coupons via large e-commerce platforms like JD.com, data can be collected for the analysis of consumption trends. For the public, especially those in dire economic need, these coupons may help to access products they could not otherwise afford, thus benefiting vulnerable groups.

However, there is concern over the involvement of only one e-commerce platform in the scheme so far. Any economic stimulus policy should include multiple platforms. Without competition, efficiency becomes a problem. Some also worry that businesses may exploit customers by raising prices and forcing them to reach spending thresholds. Whether or not this policy has a profound effect on the economy remains to be seen.

A spur on economy

Cui Luping (www.rmzxb.com.cn): According to the People's Bank of China, China's central bank, domestic bank deposits increased 1.67 trillion ($23.5 billion) year on year in the first quarter. Meanwhile, the inventories of factories and other businesses grew. As the economy gradually reopens, consumption is lagging behind production, which is bad news for producers. In this sense, government-issued coupons will do a great deal to help factories and shops.

It is widely believed that consumption coupons will better stimulate economic recovery than financial support for small and medium-sized enterprises (SMEs), spurring production while benefiting consumers.

A lot of SMEs are facing financial difficulty not because they don't have enough money to expand production, but because they can't empty their warehouses. When there is a surge in demand for their commodities, they will earn enough money to continue operating. The coupon scheme will prevent the idling of funds resulting from easy credit.

Shen Jianguang (new.qq.com): There is some concern that the government's coupon policy might lead to consumption overdrafts, but it seems that this is unwarranted. Under lockdown, consumption was curbed by tough restriction measures, and so even a sharp rise in consumption now will represent normal rebounding.

Some consumption may be lost for a long time, such as eating out or going to cinema, but pent-up consumption can be unleashed again, through the purchase of electronic products, clothes and cars. Coupons should therefore target areas that can most effectively boost consumption. As for how these coupons should be distributed, there have been numerous suggestions.

Given estimations of a strong rebound in consumption during the third quarter of this year, coupons should be issued for the second quarter, as consumption begins to recover. Coupons should be designed for consumption across various sectors, encouraging spending and also protecting livelihoods. Sectors like catering, entertainment and tourism have been severely hit by lockdown measures during the outbreak, and need to be shored up.

The coupon program should also focus on improving people's livelihoods. It is unrealistic to offer coupons to everyone, and so coupons should go to vulnerable groups, those who earn little or struggle with unemployment, particularly in places severely stricken by the epidemic. Meanwhile, it is important for governments at various levels to have a clear idea of their own budgets, so as not to become overwhelmed by budget deficits in the near future.

More policies needed

Wu Zheng (www.lnd.com.cn): Issuing consumption coupons encourages the public to start shopping, and for those who are struggling with financial difficulties, these coupons are a timely help. Businesses can expect their products to be sold and for revenues to flow inward. This will speed up economic recovery.

While much of the public has got used to paying by WeChat or Alipay, some elderly people are not yet familiar with mobile payment systems. If coupons have to be spent on a single shopping platform, spending is inhibited and may seriously affect people's willingness for consumption.

Furthermore, businesses which don't operate via online shopping platforms will see less benefit from the government's economic stimulus policy. Including only one e-commerce platform is unfair to other online platforms. Both efficiency and fairness are important in any economic recovery plan and to achieve this there must be properly designed procedures. The participation of multiple online platforms will increase consumer choice and bring more benefits to customers. This in turn will make the coupon policy more effective.

The ultimate goal of the government's coupons is spurring economic growth by giving the public tangible benefits. If the people in most urgent need of these coupons have no access to them, or these are too complicated to use, then the policy has failed.

Local governments should be open to including more online platforms and businesses, so that consumers and businesses get what they want and need, lest these coupons expire because the consumers don't actually use them.

Zhu Wanping (National Business Daily): There is room for improvement in the government's plan to issue coupons to boost consumption. So far, coupons have been distributed without specific targets in mind, when they should be aimed at low-income groups.

The restaurants and retailers currently accepting these coupons are mainly in the downtown areas of cities—counties and townships have few such venues. As a result, residents in these places have to travel to nearby city centers to spend their coupons, which costs a lot in time. The benefits of these coupons are very likely outweighed by the hassle of traveling.

In practice, rural consumers benefit little from the coupons. More retailers need to be included in the current program so that rural residents can also use them instead of traveling to big cities. Low-income families should be provided with coupons for longer to ease the economic pressure on them.

Ding Jiafa (opinion.voc.com.cn): Coupons have been issued to rouse public interest in consumption, which has been dampened by shrinking incomes as a result of the coronavirus epidemic. While many are struggling with financial difficulties, shopping remains essential, but people dare not spend as much as they used to.

Generous government doleouts like consumption coupons, however, make it possible for people to buy things they would otherwise refrain from buying. For governments at various levels eager to restart the local economy, coupons will encourage local residents to consume during a fixed period of time, controlled via expiry dates, which is seen as a driving force for economic recovery.

However, these coupons do not mean that consumers don't need to pay anything, they merely offer favorable terms and the chance to save some money. Therefore, it is possible that some stores will disingenuously increase the price of commodities beforehand or offload low-quality products on coupon-spending customers. In these cases, consumers may think they've bought products at very low prices, when in fact they've got very little. Stores may refuse to accept coupons unless customers spend a certain amount, forcing consumers to spend more than they want to.

If these issues occur, the authorities must take action. Consumers should not be tricked in this way when using coupons.

During this unprecedented time, it would be prudent for local governments to issue coupons that can be used as cash, so as to make it impossible for businesses to swindle their customers. Coupons, after all, are a matter of expediency. Ultimately the public's level of consumption depends on economic recovery and employment.

Copyedited by Laurence Coulton

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