Via China Daily

A poster of the consumption coupon issued by the Wuhan municipal government and Alipay. [Photo provided to chinadaily.com.cn]

China’s local governments may be mulling more coupon distribution programs, which have worked well in unlocking pent-up consumer demand, experts said on Friday.

Unlike stimulus checks or cash payments sent to households by authorities in the United States and Europe, coupons have been used by local governments in China to boost consumption more directly, buffering downside economic risks from the COVID-19 pandemic.

As of Friday, local authorities in most provincial-level regions on the mainland have started or announced coupon distribution programs for their residents, according to media reports.

The coupons, funded by local governments or enterprises and distributed online, typically have offered discounts of 10 to 50 percent in designated sectors like restaurants, tourism, automobiles and other retail sectors.

The amount distributed is to exceed 1 billion yuan ($141 million) in each of three provinces-Zhejiang and Guangdong, as well as Hubei, the hardest-hit mainland province.

Shanghai residents may see a record-setting amount in new coupons, as the local government announced on Thursday that the city will launch a shopping gala starting on May 5. Participating e-commerce giants Alibaba, Meituan and Suning reportedly have agreed to offer a total of 5.2 billion yuan in coupons.

“The coupon programs have been critical in buffering the sudden drop in demand,” said Liu Xuezhi, a senior researcher at the Financial Research Center of the Bank of Communications.

Liu pointed out the dual roles of coupons in improving people’s living standards and shoring up consumer purchases. They can encourage increased consumption even among those who still avoid going out even after the end of social distancing measures and those who have trimmed spending in anticipation of lower incomes, he said.

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This drives up demand along the whole industrial chain and promotes resumption of production, he said.

“I used the 100 yuan coupon discount for each 400 yuan spent to have some seafood with my girlfriend. We would not have chosen seafood but something cheaper with-out the coupon,” said an employee of a Shenzhen-based securities firm, 24, who sought anonymity.

In Hangzhou, Zhejiang province, coupons generated consumer spending of more than tenfold the face value of the coupons, officials said.

As of April 16, a total of 321 million yuan in government-funded coupons was used in the city, generating 3.4 billion yuan in consumer spending, said the local commerce authority.

Compared with cash payments, handing out coupons can more effectively shore up consumption, as Chinese people tend to save cash due to their strong saving habit, said Liu Xiangfeng, a researcher with the China Academy of Macroeconomic Research.

With coupons limited to certain uses, the programs also offer targeted support for sectors of the services industry that face difficulty in work resumption, she said.

More policy packages to boost domestic consumption, including coupons, are expected to come out soon, with the COVID-19 pandemic continuing to hammer external demand, she said.

Liu from the Bank of Communications said there currently is little chance that the central government will initiate coupon stimulus programs.

“If economic activities remained subdued into the third quarter, the central government might decide to launch large, nationwide coupon programs, but at least for now, the economy is gradually recovering,” he said.

China’s retail sales, the barometer for consumption, contracted by 20.5 percent on a yearly basis during the first two months of the year, but the contraction narrowed to 15.8 percent for March, the National Bureau of Statistics said.

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The May Day holiday, coupled with the coupon programs, are expected to help boost consumption, analysts said. They also called for more participation from enterprises in the government-led programs to optimize coupon use designations and better match consumer demand, especially among young people.

Steps to strengthen social welfare and curb unemployment are also crucial, as the coupons are only a short-term stimulus. Long-term recovery in consumer spending depends on income growth, said Wu Chaoming, chief economist with Chasing Securities.

Ouyang Shijia contributed to this story.