As China's exports continue to plummet, Chengdu is slated to take part in an experimental four-city program aimed at shifting the Chinese economy from an export economy to one driven by internal consumption.
With hopes of stimulating domestic spending, the China Banking Regulatory Commission (CBRC) has issued a draft of new rules for the creation of consumer financing firms. These consumer finance companies – both foreign and domestic companies will be allowed – will be allowed to set up on a trial basis in Chengdu, Beijing, Shanghai and Tianjin.
According to a Wall Street Journal article, private consumption in China accounts for 35 percent of the country's GDP, compared to nearly double that in the United States.
The draft rules, which have been put online by the CBRC in search of public feedback, allow domestic and foreign-invested consumer finance companies – which would not be able to accept deposits – to provide general personal loans and loans for purchases of durable goods.
Loans are to be limited at five times the borrower's monthly earnings. The deadline for public feedback is June 12.
Consumer loans only account for 12 percent of loans in China – this is primarily because there are only two channels for consumers to borrow money: banks and auto finance companies.
Financial institutions seeking to set up consumer finance companies in China under the proposed rules must have assets totaling at least 80 billion yuan (US$11.8 billion), five years of consumer finance experience and profitability over the last two fiscal years. If approved, the companies must maintain at least 300 million yuan in registered capital.
According to a Xinhua report CBRC official Chen Qiong said the establishment of consumer finance companies would assist the Chinese economy's metamorphosis from an export-driven economy to one propelled by domestic consumption.
"The establishment of consumer finance companies will expedite an increase in personal consumption, thus driving increases in the production and sales volumes of manufacturers and retailers, while also driving demand in related industries and altering the GDP's overreliance on exports and fixed asset investment," Chen said.