Economy: China Hands Out Digital Coupons to Boost Consumption

21/04/2020

Chinese residents can get the e-vouchers on online-payment platforms such as WeChat Pay or Alipay and enjoy a cash rebate when making payments at offline shops. Retail sales has fallen down  20.5%, but consumer spending made up about 58% of the country’s GDP

 

From January to March, as the novel coronavirus outbreak raged in China, the country recorded a shocking statistic: GDP shrank 6.8% while retail sales has fallen down  20.5% comparing with last year. It was the first such contraction since Beijing began reporting quarterly gross domestic product in 1992. Now the country is gradually easing lockdowns and trying to get people to go out and spend money again, as China feels increasingly confident that it has the epidemic under control. Cities across the country have started to encourage public activities as the Chinese government tries to revive a halted economy.

One of the key way due to quickly recover the economy, is booting consumptions thanks to digital coupons. In more details, several Chinese provinces and cities are doling out vouchers  – delivered to users via third-party platforms such as payment app Alipay and WeChat pay – worth tens of millions of dollars to fuel consumption in sectors on which the Covid-19 outbreak has taken a heavy toll. Residents log in to the apps to redeem the coupons, which can be used for dining, shopping, and travel for a short within a short period of time.  

 

 

Chinese economists have for years underlined how consumption are the most important driver for economic growth, as the country continues to try to shift away from an export- and infrastructure-driven economy. According to data, consumer spending made up about 58% of the country’s GDP growth in 2019, compared with 52% in 2011.  The government is also encouraging local officials to dine out as much as possible to give a boost to the dining and tourism industry too.

That’s why the aim of these gift tickets is to give the economy a short-term shot in the arm, but this policy will prove effective if demand outstrips supply. “Short-term demand has shriveled because of Covid-19”, noted Cao Xiao, director at the Quantitative Finance Research Center under Shanghai University of Finance and Economics. “Government grant of coupons can beef up local purchasing power and therefore swell demand, which should boost production, investment and other activity to spur the economy”, Cao explained.

The leadership set the path, then local government decided how to distribute the money. The city of Hangzhou, Zhejiang, planned to issue US$237 million of such coupons, while Nanjing, Jiangsu, has distributed US$1.4 million in coupons in five days. The individual discounts are often small—Hangzhou, for example, requires citizens to purchase at least 40 yuan worth of goods to spend a 10 yuan coupon. Each Hangzhou resident is also allowed to redeem only five such coupons a week.

 

 

The southern Chinese city of Foshan has issued e-vouchers too. The e-coupons worth US$14 million will be handed out in four rounds. In the first round, 300,000 coupons worth 30 million yuan will be issued and can be spent in brick-and-mortar stores in sectors including catering and tourism across the city. Shenzhen, meanwhile, requires people to redeem the vouchers through lucky drawsBy the way, the real economy is reeling tooNingbo, a port city in southeastern Zhejiang province, and eastern Shandong’s provincial capital Jinan have also issued the gift certificates to promote the real economy’s recovery from the virus, according to media. 

Some governments have also chosen to distribute vouchers directly through e-commerce platforms like Taobao, JD and Pinduoduo. Chinese e-tailer Suning.Com is also dishing out vouchers to the tune of CNY30 million in the capital, and Gome Retail Holdings has donated CNY120 million for home appliances. 

Are we at the end of this dark tunnel? Is too early to quantify the real loss and damages, moreover we should avoid a second Covid-19 outbreak. Shan Weijian, a well-known Chinese private-equity investor, argued in an interview “consumption vouchers act like cardiotonic agents or engine lighters, when the engine is started, the economy will return to normal and run on its own.”

 

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