OPINION> Commentary
Simulated stimulus
(China Daily)
Updated: 2008-12-19 07:50

The Chengdu municipal government issued cash vouchers to its low-income residents on Wednesday. This has sparked debate on whether such a move is a natural way to stimulate local spending. If it is, the next question is whether other localities will and should follow suit.

More than 379,000 low-income residents in the southwestern city were each given cash vouchers valued at 100 yuan, which they must spend before the end of January next year.

The move follows a suggestion at the weekend by Robert Mundell, father of the euro, that the Chinese government should issue every citizen cash vouchers to help stimulate consumer spending. As a result, some said what Chengdu had done was to stimulate consumption.

Actually, it is normal for local governments to provide low-income residents with aid before the traditional Spring Festival. But this time the Chengdu government has handed out cash vouchers totaling 37.91 million yuan rather than the usual food and other items.

This may be meant to stimulate spending for this particular group of residents. But to what degree will this increase the retail revenue of the designated supermarkets where the vouchers can be used, and the spending level of the residents?

Even without the vouchers, these residents would still have spent 100 yuan and more to celebrate this most important traditional festival. Except for the fact that the designated supermarkets have received a favor from the government, the total money the city's residents will spend during the festival will not necessarily increase because of the vouchers.

So such a move will in no way help stimulate consumer spending.

And if other localities do the same, it would only mean governments spending to promote the sales of designated supermarkets or shopping malls through these vouchers.

From a long-term perspective, we should not expect people to spend in an unreasonable or lavish manner. That is against the principle of frugality and neither is it conducive to sustainable development.

What is urgently needed are services that people can use to improve the quality of their lives. These services should be people-oriented and designed to meet the needs of residents.

One more thing, desirable social security services such as health insurance and pensions are yet to be further developed. This is usually the reason why people save quite a percentage of their income in banks.

Cash vouchers can only function as a temporary stimulus. The need to expand consumer demand should prompt us to further develop our service industry and promote environmental friendly consumption.

(China Daily 12/19/2008 page8)