Increase in small loans designed to improve spending among low-to mid-income earners
China will expand a pilot consumer credit service that offers small loans with no collateral to encourage more spending, especially from lower-income groups, amid sluggish demand.
An executive meeting of the State Council presided over by Premier Li Keqiang approved on Wednesday the expansion of the program from 16 cities to the entire country, saying that consumer finance that mainly serves people with low to medium incomes will release their spending potential.
The decision was made after a bigger-than-expected slide in China's imports and continued easing of the consumer price index in May, indicating further weakening of domestic demand in the world's second-largest economy.
Private capital, domestic and foreign banking institutions and Internet companies are all being encouraged to set up consumer credit companies, and the approvals procedure of the companies will be streamlined, according to a statement released after the meeting.
The administrative power to approve consumer credit companies, which was previously controlled by the China Banking Regulatory Commission, the nation's top banking watchdog, will be delegated to provincial governments.
According to rules set by the CBRC, consumer finance refers to short-term loans for personal purchases of durable goods or services such as home decorations, healthcare and education.
China launched pilot programs to approve four consumer finance companies in 2010: the Bank of Beijing Consumer Finance in Beijing, BOC Consumer Finance in Shanghai, Jincheng Consumer Finance in Chengdu and Home Credit in Tianjin. The program was expanded to 16 cities in 2013.
The current regulations, revised by the CBRC in 2013, have rigid requirements for consumer finance lenders, including interbank borrowing no higher than 100 percent of the total capital.
Bank of Beijing Consumer Finance, one of the first four consumer credit companies, promised on its website that customers do not need to provide collateral or warranties to get a loan.
The company had lent 23 billion yuan ($3.7 billion) by May, according to Chinese Financial News, which is affiliated with the People's Bank of China.
But experts doubt whether the new policies can give a significant boost to consumption, since the use of consumer credit loans is still being limited.
Wang Yajie, an official from the CBRC, said in an article published last year that the service provided by consumer credit companies highly overlaps with what customers can get from a credit card, and the interest rate of a consumer loan is usually much higher than that of a credit card.
Apart from consumer finance, Wednesday's meeting also issued initiatives to facilitate cross-border e-commerce with simplified customs procedures.
According to the Ministry of Commerce, more than 200,000 enterprises in the country offer cross-border e-commerce service through various platforms.
China E-Commerce Research Center estimated that trading volume of cross-border e-commerce will hit 6.5 trillion yuan by 2016.
