The Chinese government's decision to increase subsidies for consumers who sell their cars and home appliances in order to purchase new ones may be welcome in the sense that it can boost consumption and curb pollution. Yet if such a stimulus measure is to work effectively in the long-term, policymakers need to make sure that it is not only green but also fair. The State Council announced on Tuesday that it will raise subsidies for auto replacements from 1 billion yuan to 5 billion yuan this year, and allocate 2 billion yuan to encourage home appliance upgrades.

Doubtless, this stimulus will give another boost to China's robust consumption, a key growth engine to lift the Chinese economy out of the global recession. Chinese carmakers are already witnessing an unexpected surge in domestic demand since the country substantially cut purchase taxes for cars with small engine capacities. In the first four months, China's motor vehicle sales hit 3.83 million units, up 9.4 percent year on year, enabling the country to outstrip the US as the world's biggest vehicle market.

The increased subsidies that encourage owners of old, less fuel efficient vehicles to trade them in for new vehicles will likely make the domestic market even more vibrant to the envy of foreign carmakers who, in the meantime, are faced with a slump in most major car markets around the world.

Besides, by allowing consumers in wealthy cities and provinces to claim 10 per cent of the purchase price of new electrical goods if they turn in the old one for recycling, the new measure may also add to the revenues and earnings of many manufacturers of domestic white goods and consumer electronics.

These subsidies can facilitate the phase-out of less energy-efficient products to cut energy consumption and pollution. Replacement of low fuel standard vehicles and recycling of decade-old home appliances has become a matter of urgency as China works hard to raise energy efficiency and cut pollution.

Policymakers deserve credit for coming up with such a fiscal stimulus that smartly combines the need of boosting consumption with the task of going green.

However, while applauding all the benefits it brings about for producers and certain consumers, we have also to raise the question if such subsidies are fair. As part of the country's fiscal spending, such consumer subsidies should not be granted to further enrich the haves while leaving the have-nots empty-handed.

Fairness is a precondition for any green policy to succeed in the market. In other words, either producers or consumers should be asked to pay for pollution generated by consuming certain private products, and the payment should not be with money from the national coffers.

(China Daily May 21, 2009)