Global Economy Encourages Rebates to Chinese

Refrigerators and the Global Economy

According to an article posted by Reuters on 2/20/08 (“China Farmers to get Fridges, TV’s to Boost Consumption” by Jason Subler), China recently initiated a government program to subsidize 13% of the cost of the purchase of refrigerators, televisions, and mobile phones for rural families in Shandong and two other provinces. At first glance, this seems to have little to do with globalization or the global economy. But look at the motives behind the rebate, and the Chinese government suddenly looks less altruistic.

The rebates are not simply the government’s way of improving the lives of China’s 740 million rural poor, who have not enjoyed the benefits of China’s booming economy. Rather it is a way to encourage them to spend their money on goods produced by Chinese factories. With the possibility of a U.S. recession decreasing the demand for Chinese products overseas, it has become critical that China balance its economy and become less dependent on exports and foreign investments. Chinese economists fear they are facing the end of the boom that kept China’s economy increasing at a rate of 10% annually.

To ease the transition to a more consumer-driven economy, China is taking drastic measures. They have cancelled the agricultural tax, cancelled feed for primary education, and are putting together a form of health insurance targeted at the rural citizens. They are also seeking to close the gap between urban dwellers (annual income of 13,786 yuan) and rural dwellers (annual income of 4,140 yuan) in the hope of diffusing social unrest.

Qian Wang, who is an economist with JP Morgan Chase in Hong Kong, sees increasing sales of consumer goods as a positive sign for China. “The authorities’ medium-term strategic policy focus on stimulating domestic demand, especially amid growing concerns about the global economy, should provide additional firm support for domestic consumption,” reported Wang.

So, while the end result is an improvement for some (only 22% of rural households in China had a refrigerator in 2006), it is hardly the result of China’s concern for its poor. This unprecedented action would never have occurred had it not been for China’s awareness of their current dependence on foreign exports. Yuan Shanchun, the first recipient of the subsidy, however, isn’t complaining about motives. “Who can believe it? How come the government is giving us money to buy things?” he asked. “This is like free food falling from the sky!”