OPINION> Commentary
Boost rural spending
(China Daily)
Updated: 2008-12-02 07:47

There are good reasons to welcome the Chinese government's decision to extend subsidies for farmers' purchase of home appliances and mobile phones to another 10 provinces starting yesterday and to all other provinces from next February.

The success of the pilot program in three provinces and one city since last December bears full testimony to the huge potential of the country's vast rural market.

With a 13 percent discount jointly subsidized by the central and local governments, local farmers have bought more than 3.5 million units of TVs, refrigerators or mobile phones by the end of October, up 40 percent year on year.

More encouragingly, most of these products sold under the program are more energy-efficient than their peers in the market. It is estimated that, during their years of service, these house appliances will altogether save farmers about 2.4 billion yuan ($350 million) on electricity bills.

It looks likely that promotion of such a subsidy program across the country will considerably boost rural consumption of home appliances to both improve farmers' living conditions and cushion related domestic industries against the impact of a global slowdown.

Over a span of four years, policymakers expect that 480 million units of house appliances will be sold under the program, giving a boost worth 980 billion yuan ($143 billion) to domestic consumption, the country's new growth engine.

Rural households' ownership of TVs, washing machines and mobile phones, and refrigerators accounted for only two thirds, one half and one quarter respectively of that of their urban cousins. Given this scenario the government is perfectly justified to tilt budgetary spending in favor of farmers.

And another goal that the government can surely achieve by this move is to create a timely buffer for domestic home-appliance manufacturers.

China is now ranked the world's largest producer and exporter of TVs, washing machines, mobile phones and refrigerators. Yet, as a result of shrinking external demands, the country's home-appliance export growth slowed to below 10 percent in the first three quarters of this year from a 25 percent average in the past few years. Worse, the Purchasing Managers' Index fell rapidly in November to the lowest point with export orders, output and new orders all contracted drastically since the survey began in 2005.

The most drastic shrinkage of China's manufacturing makes it urgent for the government to boost domestic demand to absorb part of the overcapacity in the home-appliance industries. The subsidies for farmers' purchase of those products should certainly be delivered without any delay. So should other critical fiscal measures and reforms that would raise farmers' incomes and welfares.

(China Daily 12/02/2008 page8)