Fiscal, monetary tools to boost consumption

China is ramping up coordination between fiscal and monetary tools to further unleash consumption potential and energize private investment, in a bid to fuel a broad expansion in domestic demand, officials and business executives said.

With stronger support from the central government, local fiscal authorities are stepping up the rollout of a comprehensive policy package that combines loan interest subsidies, financing guarantees and risk compensation to lower financing costs and channel more resources into the real economy.

Xu Yong, a 34-year-old resident of Hangzhou, Zhejiang province, recently took out a personal consumption loan to furnish his new apartment.

The loan offered a credit line of up to 300,000 yuan ($43,886) and originally carried an annual interest rate of 3 percent. Thanks to the latest interest subsidy policy, his effective borrowing rate was reduced to 2 percent.

"The subsidy will save me about 3,000 yuan in interest payments over a year, which came as an unexpected bonus," Xu said, adding that the application process was smooth and took only a few minutes.

The reduction in Xu's effective borrowing rate came after the central government announced in January that it would allocate 100 billion yuan this year to support a broader fiscal-financial coordination package aimed at spurring consumption and private investment.

The package comprises six policies — four aimed at supporting private investment and two focused on household consumption — designed to reduce financing costs and improve access to credit for consumers, service providers and private businesses.

The interest subsidy policy for personal consumption loans will be extended through the end of 2026, while credit card installments will be included and sectoral restrictions removed to expand consumer choice.

Service-sector businesses are also receiving stronger financial support to better meet consumer demand.

Fei Peng, who runs a music training and instrument sales company in Hangzhou, secured a 1 million yuan loan from a local bank in March to purchase instruments and support business expansion.

With a 1 percentage point fiscal interest subsidy, the loan is expected to reduce the company's annual interest payments by about 10,000 yuan.

"I hope the policy support can be sustained over the long term," Fei said.

Extending the loan cycle for cultural and creative businesses to three to five years will help ease funding pressure more effectively, Fei added.

The fiscal interest subsidy program for service-sector businesses has been further expanded this year to cover digital, green, and retail sectors. Meanwhile, the maximum subsidized loan amount per borrower has been increased from 1 million yuan to 10 million yuan, with the subsidy cap raised to 100,000 yuan, offering stronger financial support to service-sector enterprises.

According to Hangzhou United Bank, which issued the loan to Fei, the financing is expected to generate at least 5 million yuan in consumption.

Lin Shiyi, chairman of the bank, said that under the guidance of fiscal policy support, Hangzhou United Bank extended 9.38 billion yuan in loans to service-sector businesses in the first quarter, mainly in retail, cultural and entertainment, and healthcare sectors.

At the provincial level, newly issued loans linked to interest subsidy policies in Zhejiang have topped 1 trillion yuan since the beginning of the year, data from the Zhejiang Provincial Department of Finance showed.

Wu Dagui, deputy head of the department's financial division, said the rollout has amplified the leverage effect of fiscal-financial coordination, channeling fresh liquidity to micro, small and medium-sized enterprises as well as service-sector businesses.

Private investment is another major focus of the package.

The measures feature broad coverage, stronger support and a diversified set of tools, with several policies working in tandem to stabilize private investment, Liao Min, vice-minister of finance, said at a news conference in January.

"The newly introduced interest subsidy policy for loans to micro, small and medium-sized enterprises, together with the optimized subsidy policy for equipment renewal loans, can both provide eligible borrowers with subsidies equivalent to 1.5 percentage points of the loan amount," Liao said.

The arrangement is helping companies lower the cost of equipment upgrades and project investment.

Nine Dragons Paper Industries (Beihai) Co, a private paper manufacturer based in Beihai, Guangxi Zhuang autonomous region, said its second-phase pulp-and-paper integration project was included this year in the interest subsidy program for equipment renewal loans.

From 2023 to 2025, the company received 64.21 million yuan in fiscal interest subsidies through a combination of local financing support measures and the equipment renewal loan subsidy program.

"Fiscal policy and funding support have strongly supported project construction and production, accelerated our digital and intelligent transformation, and effectively reduced investment and operating costs," said Zhang Yi'an, general manager of the company.

Zhang said the company's sales revenue exceeded 9 billion yuan in 2025 and is expected to surpass 12 billion yuan this year.

Beyond interest subsidies, the policy package also includes a special guarantee plan for private investment, designed to improve financing access for smaller private firms that often face collateral constraints.

A Guangxi-based dairy breeding unit of Royal Group Co is one of the businesses expected to benefit from the plan as it moves from project construction to operational expansion.

With its breeding base entering operation, the company has seen rising demand for working capital, while large upfront investment and the long cash conversion cycle in animal husbandry have added to short-term liquidity pressure.

Local financing guarantee institutions and a rural commercial bank in Guangxi have designed a tailored financing plan under the special guarantee mechanism, using the company's core breeding assets and intelligent farming equipment as counter-guarantee measures to support a three-year, 5 million yuan special loan.

The loan is expected to ease funding pressure during the expansion phase and help sustain the company's breeding program.

Data from the Finance Department of Guangxi Zhuang Autonomous Region showed that by the end of April, new lending under the region's special guarantee plan for private investment had reached 1.79 billion yuan.

Together with interest subsidies and risk compensation, such guarantee support is designed to amplify the role of fiscal funds in mobilizing credit for the real economy.

Finance Minister Lan Fo'an has said previously that preliminary estimates suggest that every 100 billion yuan in fiscal funds can support up to 1 trillion yuan in credit, achieving a "four-ounce leverage moving a thousand-pound weight" multiplier effect.

That leverage effect is also reflected in first quarter lending.

Li Nan, deputy director-general of the Financial Affairs Department of the Ministry of Finance, said newly issued loans under the related programs exceeded 8.8 trillion yuan in the first quarter, up 4.2 percent year-on-year. The loans covered micro, small and medium-sized enterprises, equipment renewal projects, service-sector businesses and personal consumption.

On the investment side, the policies supported about 330 billion yuan in corporate financing during the same period, up 12.8 percent year-on-year, and helped generate around 480 billion yuan in investment. This has helped fixed-asset investment return to growth and narrowed the decline in private investment, Li said.

Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities, said stronger consumption and investment cannot rely on fiscal support alone, but also require policies that improve incentives for households and businesses.

"By using targeted fiscal funds to lower costs and share risks, the policy can better align government support with market-based decisions, making fiscal spending more efficient and policy transmission more effective," Luo said.

Contact the writers at zhangchenxu@chinadaily.com.cn