Beijing appears to be relying on its usual method of boosting infrastructure to offset the economic gloom caused by the coronavirus. But it could boost both consumption and confidence – and help meet Xi’s poverty goals – by putting serious money in the hands of Chinese people. Wang Xiangwei specially for the South China Morning Post.
Washington’s US$2 trillion stimulus bill to combat the slowdown caused by the coronavirus pandemic is truly impressive for both its scale and the speed with which it is coming into force.
Hailed as the biggest rescue package in US history, the bill – passed by the Senate last week and in the process of getting the nod from the House of Representatives – promises not only generous loans and grants to major industries and small businesses but also direct cash handouts to most adults who will receive US$1,200 per person and US$3,400 per family of four.
As a result, global stock markets rallied last week, with the Dow Jones index rebounding by 11 per cent on Tuesday, the biggest one-day percentage gain since 1933.
By contrast, China’s response to alleviating the devastating economic impact of the pandemic has been piecemeal and uninspiring. So far the central government in Beijing has resorted to the tried-and-tested approach of boosting infrastructure investment but is still dithering over how to boost consumer consumption.
An increasing number of cities, including Shenzhen, Nanjing and Ningbo, have decided to take matters into their own hands by announcing they will issue cash vouchers to encourage residents to dine out, watch movies, buy books and join local sightseeing tours.
But because of budget constraints, those cities’ voucher schemes are more like the gimmicks or marketing promotions of more normal times than genuine efforts to stimulate consumption in a time of crisis, when compared to their promises to spend hundreds of billions of yuan on infrastructure investments.
Indeed, media reports have shown that the vouchers are not universally available and can be obtained only through a lottery or on a first-come, first-served basis. On Thursday, Hangzhou became the first Chinese city to make cash vouchers available for all residents, granting every person an e-voucher with a stored value of 50 yuan and a validity of seven days.
It is high time Beijing drew inspiration from Washington’s stimulus package and put serious money in the form of cash or vouchers in the hands of Chinese people to boost not only consumption but also confidence.
But it is doubtful whether the Chinese authorities will heed the suggestion and act accordingly, not least because officials have a history of reticence when it comes to giving money directly to the people.
Instead, more signs have emerged that the central and local authorities are ready to head down the same old road of splashing trillions of yuan on railways, motorways, airports, and irrigation for agriculture, among other things. According to China News Weekly, by March 8 about 20 provinces and municipalities had unveiled their infrastructure investment plans totalling 44 trillion yuan and the amount was set to increase as other provinces followed their lead.
At the national level, the authorities are considering a special bond issue to the tune of one trillion yuan to increase salaries for medical workers and invest in medical facilities and emergency systems that the coronavirus outbreak has shown to be inadequate.
The government has invariably turned to massive boosts in infrastructure investment to bolster the economy in times of crisis, as in the aftermaths of the Asian financial crisis in 1998, the Sars outbreak in 2003, and the global financial crisis in 2008.
To be fair, both central and local officials this time have started to make big noises about ramping up investment in what is fashionably dubbed the “new infrastructure” of 5G, artificial intelligence, cloud computing, data centres and the industrial internet of things.
But traditional infrastructure projects such as roads and railways are still expected to receive the bulk of the money as these are seen as the most effective ways to boost GDP growth.
Resorting to the old approach has understandably raised concerns about whether such efforts would again lead to excess capacity and wasteful, white elephant projects that would leave the local authorities mired in mountains of debt as seen in the aftermath of the 2008 crisis.
But Beijing’s options are limited. A troika of investment, consumption and exports drives the Chinese economy. China’s foreign trade has basically ground to a halt following the lockdowns. Now as the epicentre of the outbreak moves to Europe and the US, both key buyers of Chinese exports, that driver of growth has been basically crippled for months to come.
Chinese President Xi Jinping has repeatedly expressed confidence in the government’s ability to overcome the impact of the pandemic to achieve the country’s economic and social development goals this year. These include “eradicating absolute poverty” and “building up a moderately well-off society”.
But, in reality, most of the government’s targets sound unrealistic. For instance, as a benchmark of China’s success in “building up a moderately well-off society”, it calls for China to double 2010 GDP and per-capita income by 2020, requiring GDP growth of at least 5.6 per cent this year to meet the target. But now prominent economists, including those from China’s biggest investment bank, China International Capital Corporation, have started to slash the country’s 2020 growth forecast to below 3 per cent, given the enormous impact of the pandemic.
After weeks of lockdowns, China is gradually returning to some sense of normality as the authorities accelerate efforts to encourage businesses to resume operations. But the widely expected sharp rebound in consumption, fuelled by residents let loose after being cooped up at home for nearly two months, has failed to materialise. People are wary, not only about the possibility that the virus may return, but also about their job prospects amid a sharp economic slowdown. Indeed, avoiding massive unemployment has become the Chinese government’s top priority. Premier Li Keqiang has repeatedly urged more help for small and medium-sized enterprises, which have been hit hardest by the pandemic, so that “workers can have work and get paid”.
Last year, consumer spending contributed 57.8 per cent of GDP expansion, driving up the growth rate by 3.5 percentage points while investment accounted for 31.2 per cent, adding 1.9 percentage points to the growth rate. Both components contributed the bulk of the GDP growth rate of 6.1 per cent.
To be sure, China is readying a slew of measures to boost consumption on the supply side. These include moves to relax restrictions on automobiles in major cities, promote sales of electrical appliances for homes in rural areas, and develop medical services and education training. But the authorities should give greater priority to the demand side as people need to have more money in their pockets and the confidence to spend.
In recent years, the idea of a one-off universal basic income has gained in popularity as an increasing number of countries and regions, including Japan, have employed the method to transfer cash to people to counter economic downturns or major disasters. To combat the impact of the coronavirus, the Hong Kong government last month announced that every permanent resident aged above 18 would receive HK$10,000 in cash. In Macau, every permanent resident would be given a card with a stored value of 3,000 patacas, valid for three months. In Taiwan, each household will get four vouchers totalling NT$800 to spend on food, shopping and cultural activities.
Now Washington’s generous cash giveaway has again put the spotlight on such measures, following a campaign by former Democratic presidential candidate Andrew Yang for a “Freedom Dividend” which would involve the government sending US$1,000 a month to every American.
In contrast, Chinese officials have remained lukewarm towards such ideas, to say the least. Following similar calls in the aftermath of the global financial crisis in 2008 and 2009, there have been renewed appeals for the central government to issue cash vouchers to all citizens to combat the impact of the coronavirus.
Zhu Zhengfu, a prominent lawyer and a delegate to the Chinese People’s Political Consultative Conference, the country’s top advisory body, suggested giving out 2,000 yuan in cash coupons, valid for six months, to every ID-holding citizen, requiring a total injection of 2.8 trillion yuan from the government. Last year, national monthly per capita expenditure averaged nearly 1,800 yuan. Let’s hope the Chinese government will consider Zhu’s proposal seriously. The amount of 2.8 trillion yuan sounds a lot on its own but less so when compared to the tens of trillions of yuan promised for infrastructure projects.
Moreover, cash vouchers with a validity of three or six months can provide immediate relief for those people and businesses most affected by the pandemic.
On top of boosting consumer spending, the giveaway would have the extra benefit of helping Xi’s signature project of lifting the remaining 5.51 million people out of poverty. Xi has vowed to end China’s absolute poverty by the end of 2020 and has said the goal must be achieved despite the coronavirus.
Wang Xiangwei is the former editor-in-chief of the South China Morning Post. He is now based in Beijing as editorial adviser to the paper