BEIJING/HONG KONG (Reuters) -China plans to boost domestic consumption by offering interest subsidies on loans to households and businesses, aiming to reduce borrowing costs and spur spending, Vice Finance Minister Liao Min said on Wednesday.
Economists have long urged Beijing to switch to a consumption-led economic model and rely less on debt-fuelled investment and exports for growth. Pressures from higher U.S. tariffs have heightened calls for a shift in long-term strategy.
The policy “will support domestic consumption to become a major driving force of the national economy,” Liao said at a press conference.
On Tuesday, China announced it would offer interest subsidies for businesses in eight consumer service sectors, as well as for individual consumers. Eligible businesses and consumers can receive an annual interest subsidy of one percentage point on loans.
Consumption of services in China has significant growth potential and the policy will help expand domestic demand and stabilise employment, Wang Bo, an official at China’s Ministry of Commerce, said at the press conference.
China’s major state-owned banks, including Industrial and Commercial Bank of China, China Construction Bank and Bank of China said on Wednesday they would actively implement the new subsidy policy.
Unlike previous policies that required banks to offer cheaper loans, the government will shoulder the subsidy costs, showing regulators attach great significance to pressure on banks’ profit margins, analysts at Huatai Securities said in a research report.
The policy is expected to boost the willingness of households to borrow, while allowing banks to maintain consumer loan rates at a current level of above 3%, the analysts said.
(Reporting by Ziyi Tang, Ryan Woo and Jessie Pang; Editing by Muralikumar Anantharaman, Kate Mayberry and Saad Sayeed)
