Page last updated at 07:18 GMT, Thursday, 30 April 2009 08:18 UK

Chinese subsidies boost rural consumption

Juliana Liu
BBC News, Hunan province, central China

Fridge owner Liushiying
Liu Shiying's fridge purchase was subsidised by the Chinese government.

For Liu Shiying, there is only one room in her house for the family's brand new refrigerator: the master bedroom.

"It's safer that way," says the 51-year-old rice farmer.

"It's the most expensive item in the house. The kitchen is too smoky and dusty for it and there's no electricity in the kitchen."

The refrigerator with freezer, stuffed top to bottom with dried fish from the nearby Yangtze river, cost about 2,000 yuan ($300; £200), the equivalent of several months of harvest here in central China.

Fridge subsidies

The fridge's ticket price was 2,499 yuan.

But in an effort to get thrifty Chinese to spend more money, Beijing expanded a pilot programme to subsidise electronics purchases for farmers in February.

The government pays 13% of the retail price for designated models of refrigerators, washing machines, colour television sets, mobile phones and personal computers.

Official figures show rural electronics purchases surged by 70% in March from the previous month. The scheme is expected to run till 2012.

Stimulate consumption

Fridge seller Li Rongxiu

I will probably make a loss this year, because I can't sell these appliances

Li Rongxiu, owner of Baiyi Home Appliances

With a newly remodelled house, farmer Liu's family is one of the most prosperous in Golden Springs village. Her children work in the cities, sending money home regularly.

China's 700 million farmers are still poor compared with their urban counterparts.

But Beijing is keen to tap their collective spending power, as the Chinese economy experiences its worst slump in 20 years.

Beijing has set aside some 20bn yuan as subsidies for rural residents to buy appliances as part of efforts to stimulate consumption.

It has also ordered banks to offer cheap credit, and given out tax rebates and shopping coupons to spur spending.

Less money

The Liu family purchased their refrigerator from Li Rongxiu, owner of Baiyi Home Appliances. She is a pioneering businesswoman in these parts, selling her first appliances 20 years ago.

Agricultural earnings have fallen sharply in the Hunan province.

Ms Li heartily welcomes the government subsidy programme. Without it, business may be even worse. On a recent weekday, she had virtually no customers.

"Compared to last year, it is now taking me at least twice as long to make the same amount of money," she says.

Prices for farm products have fallen in recent months, putting less money in the pockets of farmers.

Also, a wave of bankruptcies in neighbouring Guangdong province, where most Hunan farmers go to look for factory work, means less money sent back to the countryside.

"To be honest with you, I will probably make a loss this year, because I can't sell these appliances," she says, gesturing to washing machines, television sets and refrigerators.

"I might try to get of the business this year, because it's just too hard."

Back at the Liu house, neighbours are visiting. They admire the new refrigerator. Farmer Liu, full of pride, urge them to consider buying one.

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