ZHANGQIU COUNTY, China (Reuters) - When Yuan Shanchun became China’s first farmer to receive a government subsidy to buy a refrigerator, he was inundated with queries from just about everyone he knew asking how they could get one too.
“Who can believe it? How come the government is giving us money to buy things?” the bubbly 51-year-old asked, speaking in the thick accent of the eastern province of Shandong.
“This is like free food falling from the sky!”
Yuan was the beneficiary of a pilot scheme entitling each rural family in Shandong and two other provinces to a 13 percent government rebate on the purchase of up to two television sets, two refrigerators and two mobile handsets.
The subsidies are part of a battery of policies by Beijing aimed at spurring domestic consumption and improving the lot of the country’s roughly 740 million rural residents, who make up 56 percent of the population but have not benefited nearly as much from the economy’s roaring growth as people in cities.
The concept is enticingly simple: give farmers the same tax rebates long given to exporters of home appliances, removing a policy bias towards exports and helping manufacturers tap a potentially huge pool of consumers in rural China.
“This can help soak up producers’ excess capacity and kick-start rural consumption,” said Du Linjun, director of the Finance and Trade Office of Zhangqiu County.
The local government has pulled out all the stops to make sure local farmers learn about the opportunity, blanketing local media with reports and handing out leaflets.
Retailers hang huge red banners in front of their stores proclaiming the program, dubbed “Home appliances go rural.”
While a 13 percent discount might not sound like much, the bustle inside one of Zhangqiu’s electronics shops suggests that the savings really matter to farmers.
“Shopping guides” donning red-and-gold sashes explain to a steady flow of customers that the government will give them a rebate if they buy a qualified refrigerator, TV or mobile phone by the end of May.
They point to a sign that lists the price and rebate for each model. In an indication of how much every penny matters to the rural poor, the rebate calculations are made to the “fen,” or hundredth of a yuan. That’s equivalent to about a seventh of a U.S. cent.
Sales are brisk. By 2 p.m. one recent Monday, the “Goodaymart” had sold 30 refrigerators and TVs. Since the program started on January 4, the store has sold an average of 120 rebate-eligible items per week.
Xu Guangmei and her husband, Xu Chengshe, traveled 25 km (16 miles) from their mountainous village of Nanhenghe to Zhangqiu to buy a refrigerator.
The 244.14 yuan ($34.15) rebate they received, together with the fact that it was available only for a limited time, gave them the final push to purchase a long-sought-after fridge.
“The money we saved is enough for us to afford a really nice Spring Festival,” Mrs Xu said in the living room of the modest brick-floor home where the couple live with their 10-year-old son.
Beijing could not have chosen a better time for such an initiative.
With a looming U.S. recession threatening to sap the overseas demand that has helped keep the world’s fourth-largest economy growing by more than 10 percent a year, it is more important than ever that domestic consumers step up to buy more of the goods churned out by the country’s factories.
Economists and officials almost unanimously agree that to become less vulnerable to shocks like the U.S. sub-prime crisis, China’s economy must become better balanced, relying less on exports and investment.
Spending by households accounted for just over 36 percent of gross domestic product in 2006, down from 45 percent five years earlier. The comparable shares in the United States and India are around 72 percent and 60 percent, respectively.
Seeking to turn that trend around, Beijing has already launched a number of initiatives in the past few years to put more money in farmers’ pockets and reduce their need to save for emergencies such as illness.
The government has cancelled the age-old agricultural tax, scrapped fees for primary education and is building up a rudimentary system of medical insurance for rural areas.
Still, policy makers face a tough challenge to make China a more consumer-driven economy, said Arthur Kroeber, managing director of Beijing research firm Dragonomics.
“What the government’s trying to do is just make sure that the household sector keeps pace with economic growth, but it can’t become the driver of growth,” Kroeber said. “The driver of growth is investment.”
Kroeber pointed to the very low incomes in rural areas as a sign that it would be hard to get farmers to contribute significantly more to overall spending.
Per capita incomes in the countryside averaged just 4,140 yuan last year. City dwellers made 13,786 yuan, more than three times as much.
“Basically, all the government wants to do is make sure that the rate of widening in that disparity is slowed down a bit,” he said.
That aim has not only economic, but political, roots. With the gap between China’s haves and the have-nots widening every year, authorities are concerned about growing social unrest, already visible in protests over land rights and local corruption.
Qian Wang, an economist with JPMorgan Chase in Hong Kong, is more optimistic and says that consumers, urban and rural, are becoming a force to be reckoned with.
Wang pointed to recent figures for sales of everything from mobile phone subscriptions to jewellery as showing a broad strengthening in private consumption.
Sales of furniture rose nearly 60 percent in the year to November; those of building materials were up 57 percent and home appliances about 28 percent.
“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,” Wang said in a research report.
The Xus, the couple who bought the refrigerator, personify both the achievements and limitations of government policy.
While measures like scrapping the agricultural tax and the recent subsidy have helped, they say that inflation for vegetables and meat is increasingly eating into the money they earn from growing wheat and corn and doing odd jobs.
What’s more, shoddy health insurance and social welfare systems mean that the two were left to fend for themselves when Mr. Xu lost a leg in a car accident a couple of years ago. The couple had to borrow from family and friends to pay roughly $5,000 in medical bills.
They are still deep in debt. But, to Mrs. Xu, the glistening new refrigerator represents as much as anything the idea that her family has not been left behind.
“I have been really afraid of going out of the house because I’m scared of people looking down on me,” she said, crying. “I don’t want anyone, friends, relatives or neighbors, to think we are wretched.”
Refrigerators are hardly a ubiquitous item in Chinese villages. At the end of 2006, there were just over 22 fridges for every 100 rural households, compared with nearly 92 for every 100 households in cities.
But Xu’s comments suggest that they are increasingly a must-have item.
Fifteen prominent Chinese manufacturers, including Haier, Hisense and Changhong , are participating in the project. They have even designed special models to withstand the rigors of life in the countryside, with its frequent power surges and widespread rodents.
They have also kept them relatively simple to stay within the government-mandated price ceilings -- 2,000 yuan for refrigerators, 1,500 yuan for TVs, and 1,000 yuan for mobile phones.
Yuan, the farmer, says he feels more at ease making large purchases now that he is able to buy affordable name-brand products at established retailers.
“Before, when you would buy a no-name brand, you never knew what kinds of problems would crop up. Now I even have a warranty,” Yuan said.
Beijing has said it might provide rebates for other appliances such as washing machines if the project is expanded to provinces beyond Shandong, central Henan and southwestern Sichuan where it is being piloted.
If this happens, Yu already knows what he’ll buy next.
“An air conditioner,” he said emphatically. “But it’ll definitely have to be an energy-efficient one.”
Additional reporting by Kitty Bu; editing by Megan Goldin
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