China Banks Offer Cheap Consumer Loans as Xi Urges More Spending

Chinese banks are touting a wide variety of retail lending products as authorities need a pickup in consumer spending to create a more solid foundation for the world’s second largest economy.

(Bloomberg) — Chinese banks are touting a wide variety of retail lending products as authorities need a pickup in consumer spending to create a more solid foundation for the world’s second largest economy.

Lenders including Bank of China Ltd. and China Construction Bank Corp. are offering preferential interest rates and incentives such as gift cards on e-commerce platforms to lure customers to their retail loan offerings.

While banks typically front-load their credit issuance early in the year, the latest lending push comes as Beijing exited its stringent Covid Zero policy that’s bruised businesses and dragged economic growth down the second slowest pace since 1970s.  Chinese President Xi Jinping last week called for expanding consumer demand order to realize a virtuous economic cycle.

The lending promotions also coincided with the Lunar New Year, seeking to capture consumer demand during the nation’s most important annual holiday.

The Jiangsu branch of BOC is offering annualized rates as low as 3.6% on a consumer loan product until the end of March, according to an ad. China Guangfa Bank Co. is granting rates as low as 3.65% on retail loans, down from 4.35% earlier, according to its website and local media. China’s one-year loan prime rate, a benchmark for lending rates, was 3.65% in January.

China Merchants Bank Co., known as the nation’s king of retail banking, gave out 34% rate discount vouchers on a consumer loan in a campaign that ended Jan. 31, according to information on its mobile app. New users in February will be given a 30% rate discount instead and eligible for rewards such as Dyson hairdryers. 

Policy makers have signaled they’ll prioritize economic growth this year with a key focus on boosting consumption and investment, signaling more fiscal and monetary stimulus could be on the way. China’s bank lending in January is expected to exceed 4 trillion yuan ($593 billion), a monthly record, the Securities Daily reported Wednesday citing analyst estimates. 

The consumer banking business will mainly help drive growth at Chinese banks in 2023 because it had fallen so much the year before in comparison, according to Winnie Wu, chief China equity strategist at Bank of America Corp.

While consumer retail loans made up about half of all new loans every year before the pandemic, they only comprised about a fifth of new loans last year, she said.

Still, policy makers are likely to keep a close eye on borrowing. Beijing has over the past years sought to reduce leverage in the economy, primarily through crackdown on shadow banking that has rocked the nation’s real estate market.  

“So this year and next year, if the economy were to recover and the property market were to somewhat recover, mortgage loan growth has to come back,” she said. Increased mobility will also boost credit card spending, she added, but cautioned that from “the top-down government policy guidance perspective, they don’t want household sector to overly lever up.” 

Wu said the household loan mix at banks probably will not go “back to the good old days of 50%, or more than 50%, of new loans.” 

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