China Introduces Domestic Demand Expansion Policies Amid Weak Consumption and Investment... Includes SME Financial Support

After achieving its 5.0% GDP growth target, the Chinese government has reintroduced measures to boost domestic demand, including policies to promote private investment such as loan guarantees and interest subsidies for small and medium-sized enterprises, as weak consumption and investment persist.

According to major foreign media outlets, including the state-run Xinhua News Agency, on January 20, the National Development and Reform Commission of China announced at a press conference that it would formulate an implementation plan for the domestic demand expansion strategy for 2026 to 2030 within this year.

Wang Changlin, Vice Chairman of the National Development and Reform Commission, stated, "Currently, the Chinese economy faces a situation where supply is strong but demand is weak," adding, "Going forward, macroeconomic policy should focus on strengthening the domestic economic cycle and expanding domestic demand in all areas."

He further explained, "In line with the demands of the new scientific and technological revolution and industrial transformation, we will research and establish an implementation plan for the domestic demand expansion strategy for 2026 to 2030, creating new demand through new supply."

As part of these efforts, the commission said it is considering establishing a national-level mergers and acquisitions (M&A) fund and will fully leverage the leading role of the National Venture Capital Fund to strengthen government investment and fund allocation plans. The commission also announced plans to improve public holiday and vacation schedules and enhance welfare for people's livelihoods through measures such as implementing childcare subsidies and gradually introducing free kindergarten education.

A home appliance store of an electrical and electronics distributor located in Beijing, China. The Asia Business Daily DB

The Chinese government also introduced policies to encourage investment by small and medium-sized enterprises and personal consumption.

According to the Ministry of Finance, which jointly announced new financial support policies for private investment with relevant ministries on the same day, a special guarantee program will provide loan guarantees totaling 500 billion yuan (approximately 106 trillion won) over two years for private investment loans by small and medium-sized enterprises.

If small and medium-sized enterprises require loans for purchasing equipment or raw materials, upgrading technology, expanding or renovating factories, or refurbishing stores, guarantees will be provided through the National Financing Guarantee Fund.

Medium- to long-term loans used for expansion and upgrading in consumer sectors such as food service, accommodation, healthcare, elderly care, childcare, domestic services, culture and entertainment, tourism, sports, eco-friendly industries, digital, and retail will also be eligible for guarantee support under this program.

The Ministry of Finance also announced that, starting this year, it will provide interest subsidies in the form of grants for loans related to fixed assets by small and medium-sized enterprises in key sectors such as artificial intelligence, new energy vehicles, industrial robots, pharmaceuticals, medical equipment, software, and aviation, as well as for projects financed through new policy-based financial instruments by the government.

The central government will subsidize up to 1.5% per annum of the loan interest, supporting up to 500,000 yuan (about 30 million won) in interest payments per company for loans of up to 50 million yuan (about 10.6 billion won). This policy will be implemented temporarily for one year, but the Ministry of Finance explained that it may be extended depending on circumstances.

The Ministry of Finance also extended the implementation period for interest subsidies on personal consumption loans and service sector loans until the end of this year and expanded the scope of support.

Credit card installment services are now included as eligible for interest subsidies on personal consumption loans. In addition, the scope of interest subsidies for service sector loans has been expanded to include digital, eco-friendly, and retail sectors, and the maximum principal amount eligible for support has been raised from 1 million yuan to 10 million yuan.