Feb 2, 2009

World - China spurs rural consumption

Wu Qi

Subsidy scheme for households to buy goods

BEIJING: For 10 years, the most valuable household appliance in herdsman Chaolu’s home in north China’s Inner Mongolia was a 14-inch TV set, purchased when he earned about 4,000 yuan ($580) a year.

“I could not bring myself to buy a new TV set, although the old one often failed to work properly. I had to support a family with very little money.”

Now the old TV has been replaced by a 26-inch LCD colour TV set. “The new TV set looks great. Sharp images and good sound make it worth the money,” said Mr. Chaolu (33), who paid 1,950 yuan for the set in Taipusi Banner, Xilinguole League, two days before last month’s Lunar New Year holiday.

He also enjoyed a 13-per cent subsidy, worth 253 yuan, from the government.

“With the money saved, I could buy more than 10 kg of mutton. It looks as if the government has sent me a special gift for the Spring Festival.”

China piloted the subsidy scheme for farmers buying designated brands of colour TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan and Sichuan, as well as Qingdao City from December 2007 through May 2008. They totalled 197 types of appliances. The prices were capped at 2,000 yuan for a colour TV set, 2,500 yuan for a refrigerator and 1,000 yuan for a cell phone.

The subsidy was split 80-20 between the central and local governments respectively. Each rural household was allowed to purchase two items from each category and could claim the subsidies in 15 working days. China, the world’s largest producer and exporter of household appliances, also gives a 13-per cent tax rebate to household electrical appliance exporters and exports half its production every year, said Zeng Xiaoan of the Ministry of Finance (MOF).

The government expanded the scheme to 14 provinces, autonomous regions and municipalities and included washing machines, capped at 2,000 yuan, in December 2008. Covering 53 per cent of the rural population, the scheme will run till 2012. “The rebate made me resolve to spend 1,950 yuan on a new TV,” said Mr. Chaolu.

On Sunday, China expanded the scheme to all rural people and added four products: motorcycles, personal computers, water heaters and air conditioners. Local governments can choose two of them according to demand.

Huge foreign investment and fast-growing exports have long been the major contributors to China’s economic development. With the effects of the global financial crisis spreading throughout the world, the government is looking to tap domestic consumption, especially in unexploited rural markets.

The per-capita net income for the 800 million rural residents surged by 8 per cent in 2008 to hit 4,761 yuan. “Demand for colour TVs in rural areas could touch 100 million units over the next decade, and demand for refrigerators 145 million, as China has 210 million rural households,” says Sun Yiding, a spokesman for Gome, China’s leading electrical appliance retailer. “The household appliance purchase subsidy programme could help stimulate rural consumption amounting to 920 billion yuan, drive up retail sales of consumer goods in rural areas by 2.5 percentage points, and realise household appliance sales of 480 million units,” says Fu Ziying, Vice-Minister of Commerce. Despite all the benefits, China needs to overcome problems to truly expand rural consumption with the subsidy programme, say industry officials.

“Low incomes and insecure social security services directly hamper Chinese farmers’ purchasing initiative,” says Zhu Changying, deputy head of Anping Town, Nanchong City, a major farm base in southwest China’s Sichuan Province. The scrapping of the 2,600-year-old agricultural tax in 2006, subsidies to farmers buying better strains of seed and farm machines and other government measures have helped farmers in Anping Town raise their incomes. — Xinhua


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