Analysis: China’s Faltering Growth Revives Cash Vouchers Discussion by Reuters

By Kevin Yao and Ellen Zhang

BEIJING – Recent disappointing economic data from China is intensifying calls for the government to further loosen fiscal policies, including the potential issuance of shopping vouchers, in an effort to drive growth toward the targeted rate of approximately 5% for the year.

Following a weak second quarter, China’s economy continued to struggle in July, as new home prices declined at the fastest rate seen in nine years, industrial output saw a slowdown, export and investment growth diminished, and unemployment rates increased.

While some indicators exceeded expectations, the underlying reasons for this were concerning. Rising inflation was linked to adverse weather conditions rather than robust domestic demand, a surge in imports was attributed to preemptive purchases of semiconductors ahead of anticipated U.S. technology restrictions, and gains in retail sales were skewed by low comparisons from the previous year.

The overall economic landscape presents significant challenges for policymakers, who seem increasingly inclined to amplify stimulus measures unless they are prepared to accept slower growth and the risk of declining consumer and business confidence. Carlos Casanova, an Asia senior economist, stated that the current economic performance is falling short of targets, which may warrant an increase in the budget deficit to 4% of GDP from the previously planned 3%.

An anonymous policy adviser hinted that in October, the government might consider accelerating part of next year’s bond issuance if growth remains stagnant throughout the summer. The adviser expressed that without intervention, achieving the 5% growth target could become impossible.

Last October, China similarly increased its deficit from 3.0% to 3.8% of GDP and brought forward portions of the 2024 local government debt quotas to fund infrastructure investments, particularly for flood prevention.

The approach to spending this additional funding may differ from previous years. Traditional infrastructure investments are yielding diminishing returns after years of expenditure on projects like bridges and roads. Simultaneously, the reliance on advanced manufacturing, a favored growth engine, has led to heightened trade tensions and concerns regarding industrial overcapacity.

According to analysts, for China to achieve its growth target—if that remains the objective—it is essential for policymakers to enhance support for domestic consumption.

As consumers become more cautious with their spending, major Chinese e-commerce platforms have resorted to significant discounts and promotions to lure shoppers, impacting profitability across the retail sector. A top policy meeting in July indicated a shift toward consumer stimulus, recognizing that earlier measures were not effective.

A recent editorial in state media reignited discussions about implementing consumer support, reminiscent of strategies used in the United States during the pandemic. Economists suggested the government consider providing direct assistance to consumers amounting to at least 1 trillion yuan (around $139 billion) either in cash or vouchers. This figure would represent approximately 0.8% of last year’s GDP.

Implementing such a measure would require either an expansion of this year’s deficit or the approval of additional special treasury bonds. An economist noted that issuing consumption vouchers during the upcoming National Day holiday in October would be advisable.

Many economists remain doubtful that the government will pursue this course of action, given its previous reluctance. During the pandemic, officials tended to support businesses over direct consumer assistance.

A senior China strategist at ANZ commented that any positive effects from vouchers would be temporary, emphasizing that sustained growth in consumption would only occur when conditions in the floundering property market and stock prices stabilize.

He added that household property wealth has plummeted by 20%-30% from its peak, representing a loss comparable to China’s annual economic output. "People will likely spend during the month they receive the vouchers," he explained. "Only a recovery in property and stock values can sustain elevated consumption levels."