China’s solution: coupons

HANGZHOU, CHINA —  With layoffs spreading and the traditional annual bonus cut or eliminated this year, many Chinese were in no mood to splurge during this week’s Lunar New Year holiday -- even in a well-off city like this one.

So just before the Chinese calendar turned to the Year of the Ox, the local government issued millions of dollars’ worth of store coupons to encourage its penny-pinching residents to go out and spend.

Si Gendi, 55, wasted no time in redeeming some of her vouchers. She and hundreds of thousands of other elderly, jobless workers and students got a booklet of $30 each, for use at some 240 local supermarkets and general merchandise stores.

“The last time I got something like this was when I was young,” she said.

That was back in the 1970s, and those coupons were issued to ration products that included soap and sewing machines.

“Before it was to restrict consumption so you don’t waste,” Si said, coming out of a Carrefour supermarket with a bag of dumplings. “This time the government wants us to spend more.”

Hangzhou, about 120 miles southwest of Shanghai, isn’t alone in doling out so-called consumption coupons to its lower-income citizens.

Other cities, including Nanjing and Chengdu, are distributing “tourism coupons” to spur spending at restaurants and shops. And throughout rural China, local governments are using money from Beijing to give rebates on purchases of televisions, refrigerators, washing machines and cellphones.

Such programs are all part of a broader effort to help the needy and boost domestic demand in the face of a global financial crisis that has sapped China’s exports and investments and triggered waves of layoffs throughout the economy, from the factories in the south to the high-rise office buildings in the north.

Chinese consumers were already feeling the pinch from the nation’s languishing stock and real estate markets.

Car sales in China, which in recent years had surged 20% or more annually, sank 10% in December from a year earlier, according to J.D. Power & Associates. Major chain stores in China have seen a sharp slowdown in sales, analysts say, and expectations for the near future are grim, from both retailers and consumers.

“People have this psychology of crisis,” said Victor Yuan, chairman of Beijing-based consultant Horizon Research Consultancy Group, which does polling for the private sector and the government.

Horizon’s latest survey showed consumer confidence at its lowest since the outbreak of severe acute respiratory syndrome, or SARS, in 2003.

“The real, real winter for the Chinese economy hasn’t come yet,” said Chen Jian, chairman of Hangzhou Hengwei Investment Co., which has business in restaurants, real estate and trading.

Hangzhou, one of China’s top tourist destinations, is better off than most, but it’s not hard to find people here who have pulled back on spending.

Since October, Liu Jie says, she and her husband have been squirreling away twice as much savings as before, because they could see business was slowing. She was certainly right.

In years past, the 31-year-old accountant for a software company received an annual bonus of two months’ salary, or about $600, just before the Lunar New Year holiday.

“This year, not a penny,” she said.

Her husband works as a train conductor, earning about $700 a month. His job is safe, Liu said. Still, the couple, who have an 11-month-old son, have cut spending to the bone.

“I haven’t bought clothes for months,” she said.

Her husband has even cut back on smoking, to one pack a day from two.

Liu and her husband don’t qualify for the consumption coupons, not that they would help much.

“It’s quite a good thing, but I don’t think there’s anything the government can do” to boost our spending, she said.

Few expect a big economic lift from the coupon programs, even the large-scale ones in the countryside, where villagers are getting 15% rebates on home appliances.

The coupons went to people who don’t have a lot of money to spend anyway, which limits their effectiveness as a spending stimulus. What’s more, analysts said, such programs don’t address the underlying factors behind the weak consumption, such as lower wage growth and longer-term concerns about a social safety net.

The coupon campaign “is mainly of symbolic meaning,” said Mao Shoulong, professor of public administration at People’s University of China. To truly boost consumer spending, he said, China has to offer higher-quality goods while raising the income levels of ordinary consumers.

“The idea of sending home appliances to rural places can’t solve the problem if rural residents’ incomes can’t afford them,” he said. “We all know the consequences of overconsumption. The credit crisis is exactly such a case.”

Retailers have their own ideas on how to drive sales.

At a Suning Appliance store in an old section of Hangzhou, manager Shen Jingliang pointed to a 32-inch flat-screen television that a year ago was selling for about $585. The same TV today could be had for $435.

Shen said his and other stores were offering layaway promotions that allowed customer deposits to double in value when purchase time came.

“We want to get the money out of their pockets,” he said.

Shen likes the consumption coupons. When he opened his doors last weekend, when the program began, he quickly had 10 paying customers. Their purchases included a $30 space heater and a washing machine that cost more than $150.

If nothing else, the coupons appear to have built a fair amount of good feeling toward the government.

“I’m very grateful they’re caring for us retired workers,” said Shi Baoshun, 76, a former manager of a trading company.

Like many Chinese, Shi is a prodigious saver. When he was working, he socked away half his wages. In retirement, he and his wife stash a third of their $300 monthly pension, worried about having enough for a medical emergency.

Shi rarely turns on the heater in his 950-square-foot apartment, preferring to wear a thick coat inside. He says their last major purchase was a $300 washing machine three years ago. So when the kitchen exhaust fan went on the blink, Shi was reluctant to shell out the $350 for a new one.

The coupons will ease the pain, but Shi still isn’t in any hurry. The coupons expire April 30. “I’ll get it done before then,” he said.

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don.lee@latimes.com