If one trillion subsidizes "three" industries: who to subsidize? Where does the money come from? How exactly to give and how much?

"When there is vitality, confidence will naturally appear, and when confidence is revived, the economic boom will return."

Text / Ba Jiuling (WeChat public account: Wu Xiaobo channel)

At the end of 2022, Yao Yang, president of the Peking Metropolitan Development Institute, talked about stimulating consumption at the 7th National Development Forum. At the time, he said: "There is no other way to promote consumption, which is to give money. ”

In Yao Yang's view, if the scale of consumption coupons is too small, it is meaningless. The consumption coupons issued by each place need to reach 1% of the total local economy before the people can feel it.

In 2021, the total GDP of the country will be about 114 trillion yuan. Pinch the fingers, 1% is 1.14 trillion yuan. The more than 1 trillion consumption coupons are evenly distributed to 1.4 billion people, and each person can receive 814 yuan.

Yesterday (June 8), Teacher Wu issued an article "Wu Xiaobo: Only the new middle class can save domestic demand", which proposed that the key to stimulating domestic demand is to find the joint point of consumption. And what are the joint points of consumption? Home appliances, home and home improvement, referred to as "three homes".

This can be said to be an iterative version based on Yao Yang's proposal, because it continues several outstanding questions in Yao Yang's proposal - where should "this trillion consumption coupon" be used.

The "three" industries not only have a scale of more than 300 million, but also take manufacturing as the core, which can drive the financial industry and banking industry, and can move a piece by hitting a point through their "precise drip irrigation". Teacher Wu called on the state to issue 1 trillion yuan in precise subsidies to these industries, and from the perspective of consumer groups, the main target of stimulation is the new middle class group with consumption resilience.

After the article was released, the discussion in the comment area was very enthusiastic, although many people held different opinions, but more discussion and supplementation, according to the observation of the minibus, the focus of the discussion is nothing more than the following:

1. Should companies or consumers be subsidized?

2. If it is a subsidy consumer, is the new middle class the most suitable candidate for subsidy?

3. Should the new middle class be "encouraged" to spend money?

4. If the subsidy is paid, who will pay for it?

5. How much should I really motivate?

6. How to send it more appropriately?

……

Around these issues, we have recruited some experts and scholars and entrepreneurs in related industries to ask some questions about this "proposal to promote domestic demand".

Subsidize businesses or consumers?

The first question is, who is the target of the subsidy? Is it a business, or a consumer?

Many experts say it may be more efficient to subsidize consumers.

They are based on historical experience.

For example, after the "home appliances to the countryside" policy was implemented in 2008, there were two negative effects: First, the speed of clearing backward production capacity continued to extend, and the situation of "bad money driving out good money" occurred. Second, at that time, under the high subsidy, many enterprises took the opportunity to increase prices, and the subsidies were difficult to accurately reach consumers, resulting in enterprises both increasing prices and receiving subsidies.

A similar situation has occurred in the field of civil aviation.

In 2022, in order to stimulate the recovery of the civil aviation industry, the Civil Aviation Administration of China will provide a large number of subsidies to enterprises with high vacancy rates. As a result, some airlines increase ticket prices, and the seat rate naturally decreases, which is equivalent to consumers not only paying taxes to subsidize airlines in disguise, but also having to buy tickets with increased prices.

In addition, there is a "paradox of scale" for subsidized enterprises. Studies have found that after SMEs receive subsidies, they often get significant performance improvement, but in reality, the government tends to subsidize large enterprises and state-owned enterprises for performance, and their actual conversion efficiency is not as good as that of SMEs. In other words, if you subsidize enterprises, there is a high risk of "discrimination", but the overall efficiency cannot be optimized.

In this proposal, some entrepreneurs in the "three" industries that have been called for precise drip irrigation admit that it "does not make much sense" to directly subsidize enterprises.

Subsidize the new middle class in cities or something else?

If the subsidy of consumers is clearly prioritized. So the question arises again, should the urban new middle class be subsidized, or other groups?

The discussion point of this question is: is the current domestic demand in China because the people have no spending power, or do they have money but are unwilling to spend it?

If the essence is a "no money problem" rather than a problem of spending money, then in the view of Liu Xiaobo, a well-known financial commentator, China still has a large number of extremely poor people, the urban new middle class is not the most in need of help, and the state has already proposed and implemented many policies for enterprises, such as reducing the burden of five insurances and one housing fund.

Therefore, he believes that the starting point of the policy is to increase the purchasing power of low-income people, for example, by raising the minimum pension of "low-income households" and providing subsidies in the form of "50% consumption vouchers + 50% cash" for the unemployed. The total annual amount of the two is 520 billion yuan, which will be reduced year by year after 2-3 years of implementation.

If the foothold is "unwilling to spend", then subsidizing the new middle class in cities is more appropriate.

Hu Yanan, secretary general of the Residential Decoration and Parts Industry Branch of the China Building Decoration Association, told Xiaoba that the situation she has observed at present is that the first consumer is reduced, and the unit price of the second customer is reduced.

"Many consumers cover their pockets and dare not consume, originally planned to spend 300,000 yuan on decoration, but now the budget has been reduced to about 200,000."

Yu Xuebin, chairman of Nature Home, also provided the same information: "When we went to the store, we found that first, consumers have decreased, that is, consumers have no money or confidence to spend, and second, the unit price of customers consumed by everyone has decreased. ”

Cai Yu, president of Youju, said: "Consumers do not switch to old products because they lack motivation, and giving consumption coupons is to provide motivation. To this end, he also called for more people to be helped to depict the scene after consumption upgrades, so as to stimulate the desire for consumption of the home.

In "Wu Xiaobo: Only the New Middle Class Can Save Domestic Demand", one-third of the people who voted believe that subsidies are willing to consider

Hu Yanan provided a data: in 2019, a family carried out house decoration and home appliance purchase, the national average was 191,500 yuan, and the number in first- and second-tier cities may exceed 300,000, stimulating the "three" industry, which has a pulling effect on more than 40 upstream and downstream industries.

Therefore, if you use subsidies to push a new middle class that happens to be in demand, it may have a surprise effect.

However, before subsidizing the "new urban middle class", it is also necessary to do a good job of "mapping the bottom work".

According to the 2018 National Time Use Survey Communiqué released by the National Bureau of Statistics in 2019, there are about 140 million families and about 400 million people in the mainland's middle-income group, accounting for about 30% of the total population.

Qin Shuo, a financial observer, believes that this scale should be said to be very large, but the level is not high. If problems such as unemployment and investment failure occur, this group has a certain vulnerability and is not strong in risk resistance.

Hu Yanan reminded the minibus that a misunderstanding of the new middle class also needs to be corrected.

In 2021, their survey found that the total proportion of home improvement consumption in the townships below the third and fourth tiers reached 29% this year, surpassing the first-tier cities for the first time, while the national data was 21%. At the same time, some enterprises in some developed regions of East and South China also said that the current increase is mainly from the sinking market.

Therefore, she believes that when it comes to the new middle class, it should not be limited to first- and second-tier cities. The sinking market gathers small-town youth who spend ahead of time, successful people who return to their hometowns for love, and college students who have returned to their hometowns to buy homes, all of whom have needs to be stimulated.

From this perspective, subsidizing rural consumers is also one of the options, since 2017, urban residents have a consumption tendency between 55% and 74%, while rural residents have maintained 72% to 91%. If consumer subsidies are used on rural consumers, they may unlock greater consumption potential.

How to subsidize?

So how to subsidize? Is it a subsidy, a consumption coupon, or some other way?

Let's first look at the similarities and differences in these approaches.

▶ ▷ The first method: the whole people give money. Former Federal Reserve Chairman Ben Bernanke proposed a "helicopter money" plan during the 2008 financial tsunami, and the effect was immediate. From the perspective of behavioral economics, the consumption tendency and consumption volume brought about by one-time accidental income are much higher than the effect of normal income on consumption.

Therefore, many scholars believe that China should also try such experiments. However, a set of data shows that directly sending money is like "one blow, then decline, and three exhaustion". The more it is sent, the lower the marginal benefit.

In June 2020, for the first time, the United States distributed $2,000 per person in cash to the entire population, 36% for savings, 35% for debt repayment, and 29% for consumption. However, by the time of the second national distribution in January 2021, the proportion of savings and debt repayment rose to 37%, while the proportion of consumption fell to 26%. By the third time the money was throwing away, only 25 percent of cash was spent on spending, while the share of savings had skyrocketed to 42 percent.

That is to say, after each round of disbursement, the propensity to consume decreases and the propensity to save increases. This is true of consuming-keen Americans, and the counterproductive effect can be imagined for Chinese who love to save.

▶ ▷The second method: issuing consumption coupons. The principle of issuing consumption vouchers and cash subsidies is similar, and both achieve a "multiplier effect". In the first wave of resumption of work and production from March 2020, more than 170 cities across the country issued digital consumption coupons, with a cumulative distribution of more than 19 billion yuan. At that time, the Political Research Office of the Zhejiang Provincial Party Committee conducted an investigation and found that the effect of consumption vouchers on economic stimulation was twice that of direct cash distribution.

Zhao Jian, founding president of Xijing Research Institute, believes that 70% of commodities in the current CPI basket are falling. Therefore, durable goods with falling prices and high inventories, such as home appliances, can be targeted to combine consumption vouchers to help companies recover from falling profits, deflationary pressures and high inventory pressures. "Direct investment in economic activities with the highest consumption flexibility and the highest market-oriented rate of return".

But one of the biggest problems with consumer subsidies is that consumers and businesses join forces to cash out. The Beijing News once investigated that at that time, some people used the "payment" method to sell the grabbed consumption coupons at a discount to customers who really consumed, some merchants bought their own consumption coupons to cooperate in cashing out, and some merchants made false transactions with consumption coupon sellers.

Therefore, Zhao Jian proposed that the subsidy landing can be in the form of "digital currency + e-commerce". Through the technical addition of digital currency, it is guaranteed that every amount of money can be traced, so as to solve the problem of arbitrage. At the same time, let the subsidy be directed to fixed home appliances, home improvement platforms, and negotiate with merchants how to issue them, it is best to combine with the promotional activities of the three major e-commerce platforms to play the effect of "four or two pounds".

A leading enterprise in the building materials industry estimates that if the government issues 10 million targeted consumption coupons with real money, and at the same time subsidizes specific products, starting from both ends, it will be twice as effective with half the effort.

In addition, Hu Yanan suggested that "subsidies" can be carried out by giving greater support to bank renovation loan approval policies and interest discounts, such as opening green channels, speeding up loan approval, and reducing loan thresholds and interest rates, so that consumers can retain the cash flow on hand, and through batch repayment, the budget will not be reduced to a very low level, which can also stimulate part of consumer demand.

Who pays the money?

Immediately following the previous soul torture: If you want to subsidize, where to squeeze out this 1 trillion?

Generally speaking, the sources of subsidies mainly include the operating income of state-owned capital, profits paid by the People's Bank of China, and taxes (deducted from the annual tax income of individual income tax, consumption tax, and subsidy-related industries). The cruel fact at the moment is that from the central government to the provinces to the counties and cities, this year's finances are very tight.

This is also the reason why Hu Yanan proposed to start with bank loans. In 2022, Hu Yanan's association proposed to the government that "home improvement go to the countryside (referring to townships, not villages)". She told us: "In May of this year, it was mainly stuck here, but it didn't stop. ”

In response to this dilemma, some experts and entrepreneurs coincided: the state needs to issue a special government bond.

And if it is a special government bond for the consumption of "three companies", then its stimulation of the industry is more accurate, and in our opinion, it belongs to "precision drip irrigation", hitting the joint point of consumption.

However, generally speaking, government bonds will have to be repaid when they are due, and too many consumer subsidies may lead to excessive debt on the government, and fiscal policy will have little room for maneuver. According to the Ministry of Finance, in 2023, the national general public budget expenditure arrangement will be 27.5 trillion yuan, the revenue will be 21.7 trillion yuan, and there will be a gap of 58,000 yuan that needs to be filled by national debt. If more than $1 trillion of bonds were issued at once, the shortfall would be close to $7 trillion.

On this issue, financial commentator Ma Hongman said that if from the perspective of fiscal cycle balance, the central finance has more financial borrowing rights, this is the most correct financing channel or source of subsidy funds. In the past three years, the overall consumption of local finances has been relatively large for various reasons, and at present, the pressure of fiscal repayment in some places is greater, and it is very difficult to finance through local government debt.

However, the repayment of this fund can be based on the degree of local benefit, as well as the degree of subsidy issued by the fund, and in the future, the local government will bear part of it, and it can be raised by the central finance, and finally the central and local governments will coordinate and cooperate in the repayment.

How much is the subsidy?

At the beginning of "Wu Xiaobo: Only the New Middle Class Can Save Domestic Demand", Mr. Wu cited a case he saw with his own eyes in Japan: the Japanese government stipulates that all consumers staying in hotels can refund 20% of the room rate and up to 5,000 yen in transportation expenses. As soon as the policy came out, the number of tourists increased rapidly, and the price of Tokyo hotels increased by 17% compared to before the epidemic.

This begs the question, what is the appropriate subsidy rate? Is it about 5% of the usual price of goods, or at least 20% more directly like the Japanese hotel industry?

A chairman of a leading enterprise in the building materials industry estimated it according to the current situation of the industry and told us: "For example, for our building materials products, the government can subsidize the price between 20% and 30%, and the sales volume can be significantly improved." ”

Let's take a look at the previous two projects. First, "home appliances go to the countryside", and the subsidy is quite high. At that time, farmers could subsidize 13% of the price of four products, including color TVs, refrigerators, mobile phones and washing machines.

In the subsequent "car to the countryside", farmers bought cars and received a government subsidy of 10% of the car price, and the subsidy funds were borne by the central finance and 20% of the provincial finance, respectively.

That is to say, according to experience, 5% is not enough, at least more than 10% is effective. If you need 200,000 to decorate the house, the 10% subsidy is 20,000, and 20,000 can almost allocate more than half of the home appliances, which is attractive.

According to Hu Yanan's research and calculations, 1.75 million urban and rural households below the fourth tier have decoration needs, and if each household subsidizes 20,000 yuan, a total of only 35 billion subsidies are needed to leverage the entire home improvement industry.

epilogue

Chinese are often defensive, and the worse the situation, the more they think about the way back, and the solution is not only to solve anxiety, but also to describe a good, confident future.

Teacher Wu once made an analogy: today's Chinese industrial economy is like a dull village, and everyone in the village is not without food or work, but unhappy. Everyone had a dull face, some had anorexia, some had depression.

At this time, someone needs to go to the square to beat the gong and drum, drive the beautiful girls out to dance, and take out the wine that has been cherished for many years to drink. When there is vitality, faith will naturally appear, and when faith is revived, the economic boom will return.

Whether it is to save the property market or stimulate the consumption of the "three families", it is actually for one purpose: to make the people's consumption heart move, and let the wallet come alive.

Author of this article | Xu Tao | Current value edit | Tang poetry

Editor-in-Chief | He Mengfei | Image source | VCG