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China focuses rebate on rural shoppers

Scott Tong Aug 7, 2009

China focuses rebate on rural shoppers

Scott Tong Aug 7, 2009


TESS VIGELAND: Imagine the first time your family bought a car. Or a fridge or microwave. For most Americans, that was at least a generation or two ago.

But in China, it’s happening now. Hundreds of millions of people are just now getting wealthy enough to buy certain appliances. And lately the government has been encouraging them to spend, to start shopping the way, well, the way Americans do.

From eastern China, Marketplace’s Scott Tong reports.

Scott Tong: Shanghuang village is two hours away from the glitz of modern Shanghai. Crabbing underpins the village economy: Catch ’em in the river, throw out the dead ones, sell the rest in the big city. So what do these river folk do with all the money they make? They buy appliances. With a little help from Beijing.

45-year-old Ye Feng Xiang was watching TV when she heard about a new government program called “Appliances Go to the Countryside.” It’s a rebate program.

Ye Feng Xiang: So I went out and got a new washing machine that qualified for the rebate. Before the rebate it cost $250. Now it’s only $220.

Ms. Ye already had a washer, but it was a Stone-age contraption, even by Chinese norms. It washed, it rinsed, but it didn’t spin, so she had to do the rest by hand.

Ye went over to the appliance store in town for her replacement. In her pocket: the equivalent of $500 dollars cash. That’s a full month’s income for her. The shopping trip was fast, there was no choosing.

Ye: They said, “This model is the only one that qualifies for the rebate. And we only have a few in stock. So you better buy it now.”

Sound familiar?

Smash Mouth’s “Walking on the Sun”: So don’t delay act now, supplies are running out.

“Buy it now” is Beijing’s message, as the government strives to juice China’s economy. One official says shopping is patriotic. And an op-ed in a state-run newspaper proclaims consumption is necessary under Marxist theory.

Ideology might be a flexible tool, but this campaign is firmly fixed on rural shoppers.

Andy Rothman: The main reason is, that’s where the people are.

That’s Andy Rothman of the investment firm CLSA.

Rothman: You still have a largely rural population here, about 800 million peasants, to use the Chinese government’s terminology. So it’s a lot of people. Even if you can get a few of them to buy a couple more refrigerators, that could have an impact.

Indeed, monthly appliance sales have tripled here in the last four months.

Rothman thinks another benefit of this program is to boost public confidence as China’s economy wobbles. Tens of millions of Chinese migrant workers from the countryside have lost their jobs.

Rothman: A lot of this is to do with psychology. It’s the Chinese Communist party saying to people in the countryside, “We empathize with your situation, we care about you and here’s a coupon. Go out and buy a new washing machine.”

In the long run, China hopes this rebate program helps create a more consumption-based economy. Right now, this economy leans heavily on government spending and exports. But here’s the rub: The average Chinese consumer is a tightwad. He or she saves 20 percent of each paycheck, compared to just 7 percent in the States.

There’s good reason to save here, says economist Frank Song. He teaches at Hong Kong University.

Frank Song: In China, people say it’s very expensive to get sick. You probably lose all of your wealth overnight. So you have to save for the future.

But some are splurging. Back in Shanghuang village, Ye Feng Xiang’s new washing machine is en route. The delivery man, Mr. Lin, loads it onto a curious three-wheeled vehicle: It’s a motorcycle in the front, flatbed storage area on the back.

Mr. Lin: I make a dollar for each appliance I deliver. And for a large washing machine, I make a $1.50.

He gets to Ms. Ye’s house and then drags her washing machine off the flatbed and carries it in on his back.

That’s when Ye Feng Xiang starts praising the Chinese government’s rebate program, how it’s good for the people. And her talk turns to the next “goodies” on her list. She’s going to buy an air conditioner and then a TV.

In Shanghuang village, eastern China, I’m Scott Tong for Marketplace Money.

(Staff researcher Cecilia Chen contributed to this report)

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