China pledges more financial support for consumption with loan interest subsidy
China is planning to stimulate domestic consumption by providing interest subsidies on loans for both households and businesses. This move aims to reduce borrowing costs and encourage spending, as announced by Vice Finance Minister Liao Min on Wednesday.
Economists have long advocated for Beijing to transition towards a consumption-driven economic model, shifting away from its reliance on debt-fueled investment and exports for growth. The pressures from increased U.S. tariffs have further intensified calls for a strategic shift.
Liao stated that the policy "will support domestic consumption as a major driver of the national economy" during a press conference.
On Tuesday, China revealed that it would offer interest subsidies for businesses in eight key consumer service sectors, as well as for individual consumers. Both businesses and consumers can qualify for an annual interest subsidy of one percentage point on loans.
Wang Bo, an official from China's Ministry of Commerce, emphasized that consumption of services in China holds significant growth potential, and this policy would help expand domestic demand while stabilising employment.
Major state-owned banks, including Industrial and Commercial Bank of China, China Construction Bank, and Bank of China, confirmed on Wednesday that they would actively implement the new subsidy policy.
In contrast to previous policies that required banks to offer lower-cost loans, the government will bear the subsidy costs, reflecting the importance regulators place on alleviating pressure on banks' profit margins, according to analysts at Huatai Securities.
The policy is expected to increase households' willingness to borrow, while enabling banks to maintain consumer loan rates above 3%, analysts noted.
Reuters
