China tempts consumers with discounts

China is offering consumers a 10 per cent subsidy for buying new television sets, washing machines, air conditioners and computers, in a sign that the government remains wary over the prospects of an economic rebound.

The government will earmark Rmb2bn ($292m) for the new program, the State Council, the country’s cabinet, said on Tuesday. The plan allows consumers in nine of China’s wealthiest cities and provinces, including Beijing, Shanghai and Guangdong, to claim 10 per cent of the purchase price of the new electrical goods if they turn in the old one for recycling.

The plan differs dramatically from an earlier “home appliances to the countryside” program under which Beijing encouraged rural dwellers to buy electronic goods.

That program has already boosted revenues and earnings, but it was slow to take off since it requires consumers to prove their status as rural residents, and only a certain range of low-end products selected by the ministry of commerce in several rounds of bidding are eligible. The new measure, is designed to kick-start buying as quickly and easily as possible as it does not mention any conditions and focuses on big cities with affluent consumers and well-developed retail networks.

Several bits of macroeconomic data indicated over the past two months that the Chinese economy was bottoming out, including the China Purchasing Managers’ Index which showed positive readings for two consecutive months in March and April. However, the optimism was further cooled by the shock announcement last week that China’s exports had dropped by another 22.6 per cent in April compared with the same month last year after the pace of decline had slightly slowed to 17.1 per cent in March.

Thus, in order to make up for the continued lack in export demand, China would need an even stronger push to domestic consumption.

Regarding to the auto industry, government would expand an existing program aimed at encouraging owners of old, less fuel efficient vehicles to trade them in for new vehicles. The alternative may be to introduce lease policy in the automobile market. The January stimulus package in 2009 for the auto industry, which also included a cut in small car purchase taxes, has boosted Chinese auto sales to record levels in the past two months, but government officials are understood to be concerned that the impact of that program may start to fade in the months to come.