(Yicai) Jan. 14 -- Shanghai has unveiled a new blueprint to spur consumption by better aligning service supply with consumer demand with a particular focus on finance. The action plan sets out 28 policies with financial services clearly identified as a key driver of consumption upgrading and an important link between consumers and producers.

The document, recently issued by the Shanghai Municipal Development and Reform Commission, positions finance as a core driving force for promoting consumption. Measures focus on four areas, namely consumer finance for individuals, innovation in insurance products, financial support for service-sector businesses and financing for consumption-related infrastructure.

On the consumer side, financial institutions are encouraged to tailor products to emerging consumption scenarios such as the holiday and night-time economies, and to lower the participation threshold for consumers through discounts on payments made using bank cards, repayment installment plans and other means.

At the operational level, the document calls for interest subsidies on personal consumption loans, streamlined auto loan procedures and reasonably set loan ratios, terms and interest rates. Banks are also encouraged to roll out customized credit products for green and smart home appliances and big-ticket purchases. It also suggests unlocking existing credit resources by promoting the securitization of personal consumption loans and credit card retail assets.

Such policies reflect a “two-way support” approach, Zeng Gang, chief expert and director of the Shanghai Institute for Finance and Development, told Yicai. On the one hand, they cut the cost of consumer finance through subsidies and simplified processes to ease people’s short-term payment pressure. And on the other hand, they provide financing support to service sector businesses to relieve cash flow strains.

To support service providers, the action plan proposes making better use of tools such as relending facilities for service consumption and elderly care as well as government-backed financing guarantees to implement loan interest subsidies for service businesses. It also calls on banks to step up support for first-time borrowers, loan renewals, credit loans and medium- to long-term lending.

At the same time, the document encourages the exploration of financing models based on expected income from service contracts, such as pledging ticket revenues, accounts receivable and intellectual property, as well as supply chain finance.

Financial Safeguards

Financing guarantees and interest subsidies are widely used policy tools which help support the financing of small and medium-sized service firms, Zeng said. Government-backed guarantees can enhance companies’ credit profiles, ease banks’ concerns about insufficient credit and reduce banks’ risk exposure. But they also place higher demands on banks’ risk assessment and pricing capabilities.

As goods consumption approaches saturation, improving supply conditions for the service sector provides an institutional foundation for expanding service consumption and helps form a virtuous cycle between the coordinated development of consumption and industry, said Lu Ming, a specially appointed professor at Shanghai Jiao Tong University’s Antai College of Economics and Management and executive director of Shanghai Institute for National Economy.

However, industry insiders caution that risk control must keep pace with stronger financial support. Interest-rate competition has already intensified in consumer finance, with some products priced below 3 percent, which may push risk pricing out of a reasonable range, Zeng said. Meanwhile, service sectors such as culture, tourism and catering tend to be volatile and overly rapid credit expansion could lead to a buildup of potential bad debts.

Editor: Kim Taylor