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Lockdown Financial Aid in China Leaves Households Behind

Lockdown Financial Aid in China Leaves Households Behind

China’s government is channeling its Covid-related financial aid toward businesses rather than households, an approach that’s increasingly being challenged as consumers struggle to cope under stringent lockdowns.

Officials say the support for firms aims to preserve jobs, but many households required to stay at home for weeks on end are battling to pay rent and other living costs, according to social media posts and charity workers. A total of 45 Chinese cities are now imposing partial or total lockdowns, according to Nomura Holdings Inc., restricting the movement of some 370 million people.

Lockdown Financial Aid in China Leaves Households Behind

“I haven’t received my salary, I can’t pay rent and pay my credit card,” Shanghai resident Li Zixi wrote on Weibo, China’s equivalent of Twitter. In the northern city of Changchun, Weibo user jeemoon_wendy wrote: “I don’t have any income, how about sending some unemployment benefit?”

Some prominent state-linked economists are now calling for direct handouts, as seen in the U.S. and developing countries like Brazil. That would require a shift in thinking from China’s government, which has argued that supporting business is the best way to preserve jobs while handouts could lead to welfare dependency.

Five large cities which have imposed full or partial lockdowns in the past month have offered tax cuts and subsidies to businesses worth 330 billion yuan ($52 billion), state-media reported. Local governments have delivered food packages to households, but coverage has been patchy, with residents in Shanghai and other cities spending hours each day scouring online food services for top ups.

Lockdown Financial Aid in China Leaves Households Behind

The business-focused policies extends a divide between China and other major economies that emerged in 2020, when Beijing declined to increase welfare payments as the coronavirus first rippled across the world. 

“China has had a very different way of thinking,” said Jacqueline Rong, deputy chief economist for China at BNP Paribas SA. “It aims to ensure people’s income via preserving job providers.”

Business aid generally means cutting value added tax and corporate income tax and suspending a requirement for employers to pay into social security plans. Shanghai’s were reported as the most generous at 140 billion yuan, including a three-month rent holiday for some businesses -- a figure which doesn’t include low-interest loans from state-owned banks. Companies which demonstrate they haven’t laid off workers can receive refunds of last year’s tax payments.

It’s unclear how effective the measures have been at preserving jobs. China is yet to release employment data for March, but the purchasing managers index for employment contracted, while online searches for “unemployment” have increased in the last four weeks, according to search engine giant Baidu Inc.

Lockdown Financial Aid in China Leaves Households Behind

Chinese workers can apply for unemployment benefits, which reach up to 2,000 yuan per month in Shanghai. But only about a third of the working-age population participates in the insurance program. Most likely to be excluded are the roughly 280 million Chinese who migrate between cities to work, often without formal contracts.

“Some migrant workers in suburban districts cannot work and their income has been cut off. They have no money to buy food, and because they live on the outskirts of town, they don’t receive deliveries easily,” said Yolanda, a charity worker in Shanghai who asked not to use her full name due to the sensitivity of the matter. “So their lives have become hard. If they could receive some cash that would be a big help.”

Banks in Shanghai and some other cities under lockdown have said households can delay mortgage and commercial loan payments, but there isn’t yet a national policy. A bank in the western province of Gansu refused a mortgage payment extension to a welder who hadn’t received any income for a month due to coronavirus policies, state-media reported on Sunday.

The recent lockdowns, which have compounded a sluggish recovery in household income growth since the pandemic began, has led a growing number of economists to call for payments to households. 

Income Subsidy

Zhang Bin, deputy head of the Institute of World Economics and Politics at state-run think tank the Chinese Academy of Social Sciences, told Bloomberg News that he advocates such subsidies. He called in February for a year-long income subsidy for low-income households in response to the pandemic. 

Lu Feng, an economist at the National School of Development at Peking University in Beijing, said payments to households are “necessary and desirable.” Yao Yang, dean of the school, wrote in an article last month that every citizen could receive 1,000 yuan in the form of electronic money that would expire if not spent, and could be funded through bond sales.

China has the fiscal room to step up subsidies for households, Tianfeng Securities Co analysts including Sun Binbin wrote in a note this month. The government has more room to increase borrowing than households or the corporate sector, they said.

Some cities are experimenting with direct aid, but the payments are small: the city of Changchun, in a tightening lockdown for most of March, handed its 46,000 poorest households a once-off payment of 200 yuan.

President Xi Jinping called for a “common prosperity” agenda last year, including equalizing access to government services. But senior officials who explained the concept warned against what they called “welfare-ism,” described as an excess reliance on state payments that could reduce incentives to work.

“Since the government support is conditional on lockdowns, there should be no concerns of “welfare-ism,” said Gan Li, director of a research center on household incomes at China’s Southwestern University of Finance and Economics. Payments of at least 680 yuan per month per person could be made through mobile phone apps, he added.

In the longer-term, the lack of government support tends to increase households habit of saving. 

Partially state-owned media Phoenix Media this week profiled Zhao Lei, a 32-year-old migrant worker in Shanghai who entered lockdown with just two boxes of instant noodles and a dozen bottles of water. He survived mostly on rice and vegetable handouts from neighbors and volunteers. “My ideas about consumption have changed. I won’t spend quickly like I did before,” he said.

©2022 Bloomberg L.P.