China should consider offering its first nationwide cash handouts in 2022 for a happy Spring Festival
- A one-off handout of an appropriate amount could benefit small businesses that have borne the brunt of China’s Covid-19 lockdowns amid mini outbreaks
- Giving every citizen 2,000 yuan would cost the government less than 3 trillion yuan, an expense that China can well afford without ruining its fiscal books
China should seriously consider giving the country’s first ever nationwide direct cash handouts to its 1.4 billion residents in 2022 to help improve economic sentiments, as the prolonged Covid-19 pandemic threatens to spoil the third Spring Festival in a row.
First of all, the cash payments would be in line with Beijing’s common prosperity push. China has a huge wealth gap issue, and a payout of an appropriate amount would benefit the poor more than the rich.
A one-off handout of, say, 2,000 yuan (US$314) would truly, as the Chinese proverb goes, “offer charcoal in snowy weather” to the country’s 600 million people living on a monthly income of 1,000 yuan or less.
Secondly, experiences from other economies have shown that direct handouts can work to stabilise consumption and retail sales. Hong Kong is a good example.
The city’s border with mainland China has largely been closed for nearly two years, but the Hong Kong government’s handouts of cash in 2020 and consumption coupons in 2021 have helped keep many small businesses afloat.
On the mainland, small businesses such as restaurants and grocery stores have borne the brunt of Covid-19 lockdowns during mini outbreaks around the country. They can benefit directly from cash payouts.
Thirdly, China can afford to spend. The total cost of giving every Chinese citizen 2,000 yuan would amount to less than 3 trillion yuan. That could be financed by special bonds or even budget deficits, which certainly would not deal irreparable damage to China’s fiscal books.
As the government embarks on a new round of policy easing to propel growth, it is worth trying something fresh. China’s stimulus efforts have always involved pumping money into the state banking system, which is then used to fund loans for infrastructure projects.
In theory, Keynesian stimulus will invigorate economic activities to benefit everyone, but past experiences showed that in reality, it benefits the rich and well-connected more than those who are in desperate need for help.
To be sure, a cash handout alone is not a panacea, and as with every public policy, it comes at a cost. Still, it deserves to be considered as an option: what could be the worst outcome of giving people money? On the positive side, a cash handout can give China’s economy a shot in the arm by boosting spending power and consumer confidence.
During the Spring Festival in China, senior family members and company bosses hand out red envelopes filled with money to children and subordinates. It is also a time when the government traditionally delivers additional allowances to citizens in need. Perhaps Beijing can consider giving everyone in the country a red envelope this coming holiday.
Author: Zhou Xin, SCMP