[NEW YORK] Chinese banks are slashing rates on consumer loans to record lows as policymakers ramp up stimulus to stabilise growth and counter US President Donald Trump’s tariffs.

Lenders across the wealthier areas of Shanghai, the nation’s financial capital, and Hangzhou, a key tech hub, are engaged in a price war, offering annual interest rates as low as 2.58 per cent on loans to fuel restaurant visits and shopping, according to online ads. That compares to rates as high as 10 per cent about two years ago.

Beijing is seeking to ignite consumer spending and stoke local demand to help make the long-struggling economy less reliant on trade and exports. The National Financial Regulatory Administration last week urged banks to expand the issuance of personal consumer loans while ensuring reasonable terms including credit limits and interest rates.

“The record low rates are a reflection of fierce competition among banks amid low loan demand,” said May Yan, head of Asia financials research at UBS Group. “But the root lies in people’s weak expectation for income growth and economic outlook. Cheap loans might help lift consumption to an extent, but banks need to be vigilant on risk control to avoid an increase in bad loans.”

Among those offering the cheapest rates were the Bank of Jiangsu, which is promoting a preferential annualised interest of 2.58 per cent on consumer loans of up to one million yuan (S$184,153) before the end of March. Bank of Ningbo is touting an annualised rate of 2.68 per cent for first-time borrowers with a maximum quota of 200,000 yuan, promising speedy approvals within one minute.

Boosting consumption has been a challenge for Beijing since the end of the pandemic. Retail sales have been anaemic, while consumer prices fell into deflation in February for the first time in over a year. The central bank is now studying plans to create new structural monetary policy tools to provide low-cost financial support for key consumption sectors, an official said on Monday (Mar 17).

The lending efforts put the banks, which Beijing has traditionally relied upon to guide funding to desired areas, in a tight spot as they fight record-low margins to dole out cheap loans when borrowing demand remains sluggish.

That means lenders will have to snatch existing consumer loan borrowers from their peers amid unhealthy competition, bank officials familiar with the matter said, adding the effectiveness in boosting consumption remains to be seen.

The moves could bring in more borrowers with poor credit, raising concerns that the returns may not be sufficient to cover the default risks, said the bankers, asking not to be identified discussing a private matter.

China has set an ambitious economic growth goal of about 5 per cent for 2025 and brought its fiscal deficit target to the highest in more than three decades. Lifting consumer spending is key to countering US policies. At the same time, China is still grappling with a prolonged property slump that has suppressed demand and kept prices low throughout the economy while wages stagnate.

There are signs some of the efforts are paying off. China’s retail sales increased 4 per cent in January to February from the same period a year earlier, the National Bureau of Statistics said on Monday, accelerating from a 3.7 per cent gain in December.

The Organization for Economic Cooperation and Development this week forecast global growth will slow this year, cutting its outlook for most members. Still, it said China should prove more resilient as domestic policy support offsets the impact of tariffs. BLOOMBERG