Being green and fair

The Chinese government's decision to increase subsidies for consumers who sell their cars and home appliances in order to purchase new ones may be welcome in the sense that it can boost consumption and curb pollution. Yet if such a stimulus measure is to work effectively in the long-term, policymakers need to make sure that it is not only green but also fair. The State Council announced on Tuesday that it will raise subsidies for auto replacements from 1 billion yuan to 5 billion yuan this year, and allocate 2 billion yuan to encourage home appliance upgrades.

Doubtless, this stimulus will give another boost to China's robust consumption, a key growth engine to lift the Chinese economy out of the global recession. Chinese carmakers are already witnessing an unexpected surge in domestic demand since the country substantially cut purchase taxes for cars with small engine capacities. In the first four months, China's motor vehicle sales hit 3.83 million units, up 9.4 percent year on year, enabling the country to outstrip the US as the world's biggest vehicle market.

The increased subsidies that encourage owners of old, less fuel efficient vehicles to trade them in for new vehicles will likely make the domestic market even more vibrant to the envy of foreign carmakers who, in the meantime, are faced with a slump in most major car markets around the world.