China tempts consumers with discounts

China tempts consumers with discounts
By Kathrin Hille in Beijing and Patti Waldmeir in Shanghai
Copyright The Financial Times Limited 2009
Published: May 19 2009 13:27 | Last updated: May 19 2009 14:26
http://www.ft.com/cms/s/0/28e1a20e-4462-11de-82d6-00144feabdc0.html


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

The government will earmark Rmb2bn ($292m, €215m, £189m) for the new programme, 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” programme under which Beijing encouraged rural dwellers to buy electronic goods.

That programme has already boosted revenues and earnings for many white goods and consumer electronics makers. 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. In response the government said its stimulus measures were working. Earlier this month, the People’s Bank of China said the economy was doing “better than expected” but warned of continued external risks.

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.

Analysts have said that to make up for the continued lack in export demand, China would need an even stronger push to domestic consumption.

The government has repeatedly said that it would unveil more stimulus measures if the existing ones were not enough.

Beijing also said on Tuesday that it would expand an existing programme aimed at encouraging owners of old, less fuel efficient vehicles to trade them in for new vehicles, but the programme did not appear to involve any new funds beyond the RMB5bn price tag announced for the programme in January.

The January stimulus package 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 programme may start to fade in the months to come. Auto industry analysts believe that Beijing could announce another significant stimulus package - including new spending - if there were signs that auto sales were flagging later in the year.