Abstract: In this article, the authors assessed the effect of consumption coupons issued by local governments on achieving the dual goals of boosting demand and providing relief. They concluded that these coupons mainly target industries suffered the most due to the pandemic, but fail to balance needs of different regions, and cannot benefit rural areas and people who most need financial assistance.
Since the gradual resumption of work, that many local governments gave out consumption coupons has caused widespread concern. On the one hand, the coupons have played a role in stimulating demand. With the rapid recovery of supply and slow recovery of demand, the inventory of industrial products rose rapidly. The actual growth rate of industrial end products in the first quarter was 15.5%, reaching a new high in five years. In this context, the introduction of consumption coupons can stimulate demand to a certain extent.
On the other hand, these coupons have provided relief for a certain group of people. According to official data, unemployment pressure increased in the first quarter, and employment in March fell by more than 6% from January, with about 18.3% of employees still employed but not working. In this context, some local governments have issued consumption coupons to certain groups of people in need, and some also stipulated the total amount of such coupons.
In other words, consumption coupons are tasked to serve the dual goals of boosting demand and providing relief. What is the tradeoff between the two objectives? This article does not attempt to make a value judgement on these two goals, rather, it aims to assess the effects of the coupons on both front.
I. The amount of the consumption coupons is limited
The consumption coupons are currently distributed by local governments at their own discretion. The size varies due to different local fiscal resources. In general, more developed regions provide a higher level of per capita consumption coupons.
When excluding Wenzhou and Ordos, the correlation coefficient between the amount of consumption coupons per capita and GDP per capita is 0.4. Simple linear regression also reveals that GDP per capita has a statistically significant explanatory power to the amount of consumption coupons provided per capita. In addition to the city of Wuhan, developed provinces such as Guangdong, Jiangsu, and Zhejiang have released more consumption coupons. In less developed provinces or cities, the per capita level of consumption coupons provided is at a relatively low level.
At present, the GDP per capita of the 42 cities that have issued consumption coupons averages at 94,000 yuan, which is significantly higher than the national average GDP per capita of 71,000 yuan in 2019. This means that cities that have not issued coupons generally have a lower level of economic development.
This shows that the issuance of consumption coupons is dominated by local governments and lacks coordination at the national level. It is reasonable for a city to issue consumption coupons based on its own fiscal capability to provide relief for its residents. However, from a cross-regional perspective, there are a larger population with difficulties, as well as migrant workers that are unemployed at home in the central and western regions, where the level of consumption coupons issued is relatively low. In this sense, existing consumption coupon policy lacks coordination and fails to balance needs of different regions.
II. Coupons issued target industries hit hardest by the pandemic
The current consumption coupons issued in the 42 cities mainly target the three major industries of catering, retail and tourism, with the share of cities releasing the corresponding coupons accounting for 81%, 73% and 48% respectively. This is highly consistent with the severity of the impact of the pandemic on the consumer industries.
Concerning the services sector in the first quarter, the accommodation and catering industry, wholesale and retail industry, and tourism industry were all hit hard. Among them, the value-added growth rate of the first two industries in the first quarter were -35.3% and -17.8% respectively, making them the two sub-sectors that suffered the most due to the pandemic. Though tourism is not further divided in the national economic accounting, the transportation industry which is related to it also declined significantly. From this perspective, considerations about helping industries and enterprises is the main motivation of issuing consumption coupon.
Targeted industries of coupons
Share of cities issuing corresponding coupons (total: 42 cities)
III. Consumption coupons mainly benefit urban residents instead of rural residents and those with difficulties
Of the 42 cities, 15 of them have issued coupons for specific groups, including people with acute difficulties, people living on minimum subsistence allowances and orphans. Five cities also specified the amount of consumption coupons issued to these groups, with the maximum, minimum and median respectively accounting for 15.3%, 0.9% and 10% of the total. However, due to the following reasons, it is difficult for consumption coupons to really benefit the rural areas and people in need.
First, the amount of consumption coupons is limited. As mentioned earlier, based on the population of permanent residents, the per capita amount of consumption coupons in the 42 cities is 19.6 yuan, with a median of 8.9 yuan. Although some cities have given support of several hundred yuan to specific groups, it is still utterly inadequate.
Second, transportation inconvenience and costs prevent rural consumers to use the coupons. Consumption coupons in many cities are limited to shops in urban business centers, thus limiting the use of coupons to the city center. According to incomplete information, there are 7 cities that require on-site consumption and disallow the coupons to be used through takeaways and delivery services. Given the small size of the coupons, and high transportation costs, it's difficult for rural consumers to truly benefit from these coupons.
Third, there are too many restrictions. Some cities have imposed various restrictions on using consumption coupons. For example, a city restricted its 4.2 million yuan catering coupon to 13 restaurants. In some cities, the consumption threshold is set too high. For example, a coupon of 50 yuan can only be used when the consumption reaches 800 yuan. In other places, consumption coupons target industries not essential to people's livelihood. For example, the amount of auto coupons in a city accounts for 69% of the total. Considering the above situations, consumption coupons can only play a very limited role in providing relief.
Fourth, almost all consumption coupons are issued through digital platforms, and mobile payment is required for consumption. For the elderly and people without electronic payment devices, this is a technology barrier. And these groups often are the part of population that needs relief the most. Therefore, it is necessary to consider the combination of online and offline distribution of coupons.
IV. Problems lying in the current approach of consumption coupons
The focus of the consumption coupon policy is to bail out key industries, but the overall amount is small. The coupons in almost all the regions adopt the form of price break discounts, and the use of such coupons are restricted to specific industries. Featured by a relatively strong promotional nature, the coupons have more price effects than income effects. Therefore, the actual stimulus effects of the coupons are relatively limited.
Geographically speaking, local governments are going their own way in accordance to their own fiscal resources. As a result, the eastern regions and developed provinces have issued more coupons than the central and western regions and less developed provinces. At the same time, due to the aforementioned reasons, it is difficult for coupons to truly benefit the rural consumers. In other words, consumption coupons have failed to achieve the intended relief effect from both the geographic and target group perspective. Employment is a lagging variable, and it takes time for the unemployed to find a match in the job market. In particular, how to help the people with informal employment is also a question worth considering. In this context, what role the consumption coupon policy needs to play is still an open question.
