China Offers Subsidy To Boost Spending At Home

Saleswoman Yan Mingzhu stands with the red refrigerator she sold to farmer Cai Jishou i

Saleswoman Yan Mingzhu stands with the red refrigerator she sold to farmer Cai Jishou, who took advantage of the government's 13 percent subsidy — part of a plan to stimulate spending as demand for Chinese goods overseas sags. Louisa Lim for NPR hide caption

itoggle caption Louisa Lim for NPR
Saleswoman Yan Mingzhu stands with the red refrigerator she sold to farmer Cai Jishou

Saleswoman Yan Mingzhu stands with the red refrigerator she sold to farmer Cai Jishou, who took advantage of the government's 13 percent subsidy — part of a plan to stimulate spending as demand for Chinese goods overseas sags.

Louisa Lim for NPR
Rows of flat-screen televisions advertise discounted pricing i

Televisions are also part of the plan, but sales reportedly have not increased much. "Even farmers want flat-screen televisions nowadays," one sales assistant said. Louisa Lim for NPR hide caption

itoggle caption Louisa Lim for NPR
Rows of flat-screen televisions advertise discounted pricing

Televisions are also part of the plan, but sales reportedly have not increased much. "Even farmers want flat-screen televisions nowadays," one sales assistant said.

Louisa Lim for NPR
Lu Guami says she can't afford a fridge, even with a government subsidy i

Lu Guami says she can't afford a fridge, even with a government subsidy. Like many other rural Chinese, she's saving toward education and health care costs. Louisa Lim for NPR hide caption

itoggle caption Louisa Lim for NPR
Lu Guami says she can't afford a fridge, even with a government subsidy

Lu Guami says she can't afford a fridge, even with a government subsidy. Like many other rural Chinese, she's saving toward education and health care costs.

Louisa Lim for NPR

Facing slumping demand for Chinese goods overseas, China's government is trying to stimulate consumption at home — spending $2.25 billion to subsidize discounts on made-in-China fridges, washing machines, mobile phones, TVs and cars for its rural residents. But Chinese citizens' tendency to save their cash could prove to be a hurdle.

Cai Jishou stands open-mouthed in front of a new red refrigerator, a burly farmer out of place in a department store. He's barely listening as a shop assistant flicks open the freezer compartment to demonstrate the features of his new fridge.

"We've been waiting for years to buy this," Cai says, grinning broadly. "We're very pleased."

He's especially pleased because the Chinese government is chipping in, giving him a 13 percent subsidy — around $40 — toward his $300 fridge.

"We used to sell 10 fridges a day," says saleswoman Yan Mingzhu, who sold Cai his red fridge in a department store in the far northwestern city of Xining. "Now we're selling double that."

In pilot projects, the quaintly named "electrical appliances to the countryside" plan lifted sales by 40 percent. It's running alongside other experiments in boosting consumption.

One well-publicized plan was dreamed up by the city of Hangzhou, which is encouraging tourists to visit by distributing free travel coupons in Shanghai and other cities. Hangzhou is also paying 10 percent of civil servants' salaries in shopping vouchers, and it's giving out free shopping coupons.

The problem for the Chinese government is that its cautious citizens save too much — and spend too little.

"I saved 70 or 80 percent of my salary in a bank account," says MBA student Sherry Zhao, illustrating this trend. When she was working in a bank, she earned twice as much as her friends, but she lived at home. She was saving for her studies, but also because, she says, that's what Chinese people do.

"We Chinese have a tradition. We do not like to waste money. If I buy things too much, my mother will criticize me," she says.

China has the world's highest personal savings rate: In 2005, Chinese saved 25 percent of their disposable income, compared to 0.7 percent in the U.S.

Zhang Jun, economics professor at the China Center for Economic Studies at Shanghai's Fudan University, says as people have gotten richer, they have saved more.

"What we see in the last 10 years is a declining share of consumption spending relative to GDP."

And when it comes to the national savings — which include savings by businesses and governments — according to Chinese figures in 2007, China saved the equivalent of 49.9 percent of its GDP. This has contributed to huge global trade imbalances: Chinese savings have in effect been funding American spending. So, according to Zhang, stimulating Chinese consumption can only have a limited effect.

"In the short run, it doesn't solve the problem of the global imbalance," he says. "We could say to the U.S. side that the U.S. needs to save more, so that they could ease the problem of the global imbalance."

There are some signs of optimism. Chinese retail sales were up 15 percent from a year earlier in the first two months of the year, better than some had predicted. But speaking in Shanghai, economist and Nobel laureate Joseph Stiglitz cautions that China can't save the world.

"China's level of consumption — the size of economy — is still a small percentage of the global economy. It's simply not big enough to pull the world out of the downturn," Stiglitz says. "On the other hand, it can play an important role, and particularly important for people in China."

But back in the countryside, China's still facing problems turning its peasants into consumers.

"I'm not buying a fridge," says 48-year-old Lu Guami, shivering as she looks at the light snow on the ground in Shangxinzhuang village near Xining. "I still have to pay for my son's education."

And like so many other uninsured peasants, she worries about the cost of getting ill.

Beijing has recently ramped up spending on education and social welfare. But to really create a consumer society, China needs to build a social security system its people can trust. And that's a task that will take years, if not decades.

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