Boost in Financial Aid for Consumer Spending in China through Interest Rate Subsidies
China Announces New Interest Subsidy Policy to Boost Domestic Demand
China has unveiled a new interest subsidy policy aimed at expanding domestic demand, providing more financial resources to households and businesses, and reducing credit costs. The policy, known as the 2025 Interest Subsidy Policy, is expected to be a critical fiscal tool in boosting consumption and accelerating China's economic transformation.
The policy targets eight sectors: catering and accommodation, health care, elderly care, childcare, housekeeping, culture and entertainment, tourism, and sports. Eligible loans for service sector businesses must be taken between March 16, 2025, and December 31, 2025, and used specifically to improve consumption infrastructure or service capacity. The loan interest subsidy is 1 percentage point annually, for up to one year, and the maximum eligible loan size per operator is 1 million yuan.
For individual consumers, the subsidies will apply to personal consumption loans (excluding credit cards) used for verified consumption purposes. Eligible expenses include single transactions under 50,000 yuan and priority consumption categories above 50,000 yuan such as automobiles, elderly care, childbirth support, education, culture, tourism, home furnishings, electronics, and health services. The maximum subsidized amount per single transaction is capped at 50,000 yuan, and the annual subsidy is 1 percentage point, capped at 50% of the loan interest rate, with a cumulative maximum subsidy of 3,000 yuan per lending institution.
The policy is designed as a dual approach addressing both the demand and supply sides of consumption. By lowering financing costs via subsidies, it encourages small and medium-sized enterprises (SMEs) in key service sectors and households to increase spending and investment in consumption. This fosters infrastructure and service supply enhancements in consumption-related sectors, which employ around 40% of China's workforce.
The policy aligns with China's broader "Dual Circulation" strategy, prioritizing domestic demand and stabilizing employment to transition towards a consumption-led economy. It is expected to leverage financial resources effectively, with every 1 yuan of subsidy potentially mobilizing 100 yuan in consumption-related loans. The policy aims to stimulate sectors with underpenetrated potential such as elderly care and digital infrastructure, driving sustained economic vitality.
China's Vice Finance Minister Liao Min announced on Wednesday, August 13, that China plans to subsidize some interest on loans. Major state-owned banks, including Industrial and Commercial Bank of China, China Construction Bank, and Bank of China, have announced they will actively implement the new subsidy policy. Economists have long urged Beijing to switch to a consumption-led economic model, and the new policy is viewed as a significant step in that direction.
The policy represents a coordinated effort among multiple government departments, including the Ministry of Finance, the People’s Bank of China, and the National Financial Regulatory Administration, affirming its broad governmental backing and strategic importance. The policy is intended to boost consumption in China, stabilize employment, and support domestic consumption to become a major drive force of the national economy.
Us tariffs could potentially increase for businesses that import goods from China due to potential retaliation, given China's new finance policies aimed at boosting domestic demand. The new interest subsidy policy, coupled with the government's support, may influence businesses to focus more on domestic finance, reducing their reliance on external sources, thereby mitigating the impact of any potential us tariffs.
