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Spur domestic buying with long-term fixes, not one-time vouchers
By Mei Xinyu |
January 21, 2009, Wednesday
|
Print Edition
Print Edition
IN the global financial crisis, many a scholar in China is advocating that the government distribute consumer vouchers to boost sluggish domestic demand.
Expanding China's domestic demand is necessary, given the declining overseas demand, but issuing consumer vouchers cannot achieve the objective, whether they're distributed to everyone in a region or only given to low-income people, as many scholars suggest.
After all, the country's objective is to ensure a sustainable growth of domestic demand rather than to stimulate the domestic demand in a one-time spurt.
The effect of issuing consumer vouchers is short-term, if it has any effect at all.
It is likely that what consumers buy with vouchers would overlap with what they would have bought without them.
In this sense, the vouchers do not necessarily increase consumption at all.
Even if vouchers do boost one-time consumption, we have to bear in mind that overdependence on windfalls like consumer vouchers may weaken Chinese people's spirit of struggle against adversity. This is the key to China's survival throughout numerous disasters during its thousands of years' history.
Admittedly, after 30 years' reform and opening up, China has become one of the countries with the most imbalanced income distribution, and this is one reason for low consumption.
The way to improve the situation is to optimize the mechanism for income distribution to make it fairer - not to give out "extra" money.
Except for those without the ability to work, everyone should enjoy welfare benefits in connection with employment.
There are several ways China could boost domestic demand without distributing consumer vouchers.
One way is to create more job opportunities.
Increasing investment and stimulating consumption are not contradictory in this respect. Investment creates jobs, which is the premise for consumption.
Only when rural infrastructure such as roads, water and electricity are improved will farmers get more income by selling more products to larger markets.
Another way is to ensure the public has more predictable disposable income in the future.
To achieve this, China needs to restructure or improve social security, including the pension system, medical care and compulsory education. The government needs to moderately enlarge the demand for affordable housing.
Keeping housing prices at a reasonable level while maintaining the amount of real estate transactions may release more purchasing power.
In addition, faced with the rapid fall of the bulk commodity prices on international primary commodity markets, the government should support some important primary commodities, especially agricultural products, by keeping or raising government purchase prices and establishing or increasing reserves for those commodities.
A third way is to reduce the imbalance of income distribution by ensuring that more national income flows to people with medium and low incomes.
Those people are more likely to spend their money on Chinese products, while those with high incomes tend to buy foreign luxury products.
(The author is a senior researcher in the Ministry of Commerce. The views are his own. He can be reached at www.meixinyu.com.)
Expanding China's domestic demand is necessary, given the declining overseas demand, but issuing consumer vouchers cannot achieve the objective, whether they're distributed to everyone in a region or only given to low-income people, as many scholars suggest.
After all, the country's objective is to ensure a sustainable growth of domestic demand rather than to stimulate the domestic demand in a one-time spurt.
The effect of issuing consumer vouchers is short-term, if it has any effect at all.
It is likely that what consumers buy with vouchers would overlap with what they would have bought without them.
In this sense, the vouchers do not necessarily increase consumption at all.
Even if vouchers do boost one-time consumption, we have to bear in mind that overdependence on windfalls like consumer vouchers may weaken Chinese people's spirit of struggle against adversity. This is the key to China's survival throughout numerous disasters during its thousands of years' history.
Admittedly, after 30 years' reform and opening up, China has become one of the countries with the most imbalanced income distribution, and this is one reason for low consumption.
The way to improve the situation is to optimize the mechanism for income distribution to make it fairer - not to give out "extra" money.
Except for those without the ability to work, everyone should enjoy welfare benefits in connection with employment.
There are several ways China could boost domestic demand without distributing consumer vouchers.
One way is to create more job opportunities.
Increasing investment and stimulating consumption are not contradictory in this respect. Investment creates jobs, which is the premise for consumption.
Only when rural infrastructure such as roads, water and electricity are improved will farmers get more income by selling more products to larger markets.
Another way is to ensure the public has more predictable disposable income in the future.
To achieve this, China needs to restructure or improve social security, including the pension system, medical care and compulsory education. The government needs to moderately enlarge the demand for affordable housing.
Keeping housing prices at a reasonable level while maintaining the amount of real estate transactions may release more purchasing power.
In addition, faced with the rapid fall of the bulk commodity prices on international primary commodity markets, the government should support some important primary commodities, especially agricultural products, by keeping or raising government purchase prices and establishing or increasing reserves for those commodities.
A third way is to reduce the imbalance of income distribution by ensuring that more national income flows to people with medium and low incomes.
Those people are more likely to spend their money on Chinese products, while those with high incomes tend to buy foreign luxury products.
(The author is a senior researcher in the Ministry of Commerce. The views are his own. He can be reached at www.meixinyu.com.)
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