New efforts to bolster the real economy by boosting consumption has been launched by China Banking and Insurance Regulatory Commission (CBIRC)
The regulator said it will optimize consumer financial products and services to encourage consumption of durable goods, including new energy vehicles and eco-friendly home appliances, and promote the increase of consumption related to home purchasing, renting and furnishings.
On top of that, it will also provide credit support and insurance coverage to new types of consumption and service consumption.
According to decisions made at a recent meeting of the CBIRC, financial policy would jive with its fiscal and social policies more proactively by giving priority to its support for consumption recovery and expansion.
To recap, the CBIRC announced on Dec 29 that it has proposed the first revision of the rules governing auto finance companies since 2008 to strengthen oversight of such companies and help boost auto-related consumption.
The regulator intends to allow car buyers to apply for financing for add-on products such as navigation equipment, charging piles and batteries after they have received auto loans.
It also intends to allow auto finance companies to provide dealers and vehicle after-sales service providers with loans to buy maintenance equipment and build auto showrooms.
CBIRC will encourage auto finance companies to enrich financial products and step up support for micro, small and medium-sized car dealers, auto sales service providers and car buyers to further boost the steady growth of auto consumption, according to the draft regulation.
“The lifting of COVID-19 restrictions in China will promote consumption recovery, which will also be driven by other factors like excessive savings and pent-up willingness to consume during the pandemic over the last three years,” Wang Jun, director of the China Chief Economist Forum said.
However, whether excessive savings will become a driver for a consumption rebound still remains to be seen.
Although the optimization of COVID-19 prevention and control measures is expected to spur consumption growth, continuous improvement of consumption will still rely on whether China can stabilize household income expectations and achieve recovery of consumer spending power.
In November, renminbi deposits in China increased by RMB2.95 trillion ($428.76 billion), an expansion of RMB1.81 trillion year-on-year. Among the total, household deposits rose by RMB2.25 trillion, the PBOC said.
“The huge increase of household deposits was caused by both short-term and long-term factors, including unstable employment and uncertainties brought by COVID-19 as well as China’s imperfect social security system,” Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co. was quoted as saying.
“In order to better promote the development of the real economy, the government should face up to this phenomenon, take measures to guide rational expectations for improvement of household incomes, and increase people’s willingness and capacity to consume and invest,” Dong added.
The chief economist at Everbright Securities, Gao Ruidong also commented that China must strengthen efforts to ensure employment, which will help stabilize household income expectations.
“Given that the impact of COVID-19 on low-income groups is fairly large, policymakers should consider giving out consumption vouchers and increasing transfer payments to local governments to reverse the downturn in consumption,” Gao concluded.