Lower rates stimulate consumer lending

A number of Chinese banks have ramped up consumer lending by launching promotions and lowering lending rates as China's easing of COVID-19 containment measures is expected to promote economic recovery and a gradual pickup in consumer demand.

Many banks in China that lead the industry in terms of total assets have cut their consumer lending rates to below 4 percent. For those clients who meet certain requirements, some banks have even offered certain consumer lending products at the minimum rate of 3.65 percent, which is the same as the one-year loan prime rate, a benchmark lending rate of China's central bank.

The China Banking and Insurance Regulatory Commission said it will prioritize efforts to support the recovery and expansion of consumption in 2023. China Construction Bank Corp, a large State-owned commercial lender, also said expanding consumer lending will be the centerpiece of its business this year.

According to the National Bureau of Statistics, the nonmanufacturing business activity index and the new order index both rose significantly in January. This is due to residents' expectations that the consumption of goods and services, represented by tourism, catering and entertainment, will enjoy a strong rebound after the pandemic peak, said Darius Tang, associate director of corporates at Fitch Bohua, a wholly owned subsidiary of Fitch Ratings.

Economic stabilization will lead to the improvement of the employment situation and salary hike, which will lay a sound foundation for the continuous release of pent-up consumer demand, said Lian Ping, chief economist at Zhixin Investment and head of the Zhixin Investment Research Institute.

This year, China will continue to launch and implement policies to strengthen efforts toward expanding domestic demand and consumption. Lian advised the People's Bank of China, the central bank, to launch structural monetary policy instruments such as a consumption relending facility, thus promoting commercial banks to further cut consumer lending rates to 3 percent or even lower.

Banks and financial regulators should also strengthen supervision of the use of consumer credit funds to prevent the money from being invested in financial products, Lian said.

As homebuying has made a great contribution to consumption in China and conditions are ripe for the housing market to stabilize in the second quarter, he advised the PBOC to cut its five-year LPR by more than 30 basis points and also lower the minimum down payment ratio for first-time homebuyers in some cities to 10 percent, in order to further boost home purchases.

The repair of China's credit structure is more important than the recovery of total credit this year. A pickup in household credit growth, driven by real estate sales, is a key variable in the credit structure. It is expected that yuan-denominated loans will increase by around 10.4 percent year-on-year in 2023. Loans to the services sector and individual housing loans will recover, said Ma Xiangyun, an analyst with Changjiang Securities.

Looking ahead, the central government is expected to boost consumption by supporting daily-life service providers and individual — or family-run small businesses, with the aim of stabilizing employment and household income growth, said Wen Bin, chief economist at China Minsheng Banking Corp.

The government will also step up measures to increase consumer willingness to deploy excess savings, promote offline consumption and stimulate housing purchases, Wen said.

He forecast that China's retail sales may post double-digit growth in 2023, aided by the low base last year.