He Dexu and Zhang Xuelan: Guiding Financial Institutions to Increase Support for Expanding Domestic Demand
Expanding domestic demand is the strategic starting point for constructing the New Development Paradigm.
The 2025 Central Economic Work Conference designated "persisting in the primacy of domestic demand and building a strong domestic market" as a key task for the inaugural year of the 15th Five-Year Plan, emphasizing the need to "guide financial institutions to increase their support for expanding domestic demand, scientific and technological innovation, and key areas such as micro, small, and medium-sized enterprises (MSMEs)." Supporting the stimulation of consumption and the expansion of domestic demand is a critical component of financial services for the real economy. As the core of the modern economy, finance’s role as a support, lever, and driver for various fields of economic and social development has become increasingly prominent. The depth, breadth, and precision of its functional play directly impact the effectiveness of domestic demand expansion. To conduct this year’s economic work effectively, we must fully leverage the role of finance, particularly by effectively improving the adaptability and sustainability of financial services in expanding domestic demand.
The Key Lies in Optimizing Structure, Strengthening Transmission, and Promoting Circulation
Finance is the lifeblood of the national economy. Aggregate financial indicators reflect both the status of macroeconomic operations and the intensity of financial support for the real economy. In recent years, China’s financial system has played a key role in stabilizing growth. However, as the economy shifts from a stage of high-speed growth to one of high-quality development, a natural moderation in the growth rate of financial aggregates has become inevitable. As noted in the Report on the Implementation of China’s Monetary Policy for the Third Quarter of 2025 released by the People’s Bank of China (PBOC): "A moderate decline in the growth rate of financial aggregates in the future is natural and consistent with our country’s transition from high-speed growth to high-quality development." Objectively, this requires that financial support for expanding domestic demand shift from being scale-driven to quality-and-efficiency-driven. It should no longer pursue the expansion of social financing and credit scale one-dimensionally, but rather place greater emphasis on the precision of capital allocation, the directness of policy transmission, and the sustainability of financial services for the real economy.
This shift holds profound realistic significance. On one hand, the external environment is complex and severe, trade protectionism is intensifying, and the recovery of the world economy is sluggish. On the other hand, internal bottlenecks in expanding domestic demand persist: the household savings rate remains high, the propensity to consume is relatively low, and there is a mismatch between the financing needs of MSMEs and the supply of medium-to-long-term credit. Under these conditions, relying solely on aggregate easing makes it difficult to stimulate the vitality of micro-entities. We must optimize structure (such as increasing the proportion of inclusive loans for small and micro businesses), strengthen transmission (such as smoothing the interest rate transmission mechanism from short-term to long-term), and promote circulation (such as facilitating the efficient movement of capital between the financial system and the real economy). This will ensure finance truly becomes a strategic fulcrum and a vital safeguard for expanding domestic demand.
At a deeper level, this shift reflects the inherent requirements of high-quality development. When the main engine driving economic growth shifts from the scale of factor inputs to the improvement of total factor productivity, financial support must shift from "guaranteeing volume" to "improving efficiency." Optimizing structure helps improve the quality of resource allocation; capital must be guided toward key areas and weak links such as advanced manufacturing, green and low-carbon development, inclusive small and micro businesses, scientific and technological innovation, and rural revitalization, while avoiding the misallocation of resources to low-quality and low-efficiency fields. Strengthening transmission helps improve the efficacy of policy implementation; we must lower the comprehensive financing costs for the real economy by optimizing policy-based financial instruments, strengthening performance assessments and incentives, and improving mechanisms for "due diligence and liability exemption" [1]. Promoting circulation helps enhance the sustainability of development; we must clear the bottlenecks and "chokepoints" [2] that hinder the virtuous interaction between consumption and investment. This involves both strengthening residents' consumption capacity and willingness—through implementing plans to increase the income of urban and rural residents, optimizing the implementation of "Two News" [3] policies, and expanding the supply of service consumption—and improving investment efficiency by stabilizing infrastructure investment, supporting private investment, and revitalizing existing assets. This will solidify the foundation for a dynamic balance among consumption, investment, employment, and income. In short, optimizing structure is the prerequisite for improving capital use efficiency, strengthening transmission is the key to conquering the "last mile" of policy implementation, and promoting circulation is an important condition for expanding domestic demand. Only through concerted efforts can finance truly become the "accelerator" for expanding domestic demand.
Structural Issues Deserving Attention
Currently, a "temperature difference" persists between macroeconomic data and microeconomic perceptions. A deep analysis reveals several structural issues in financial support for domestic demand that urgently require systemic solutions.
For residents, the financial support mechanisms to ensure they "can consume, dare to consume, and are willing to consume" are not yet sound. Consumption is the ultimate demand. At present, household loans show structural divergence: medium-to-long-term loans remain stable, but residents' demand for short-term consumption loans is growing rapidly, a demand some banks still struggle to meet. Some middle-to-low-income groups and flexible employees face practical constraints such as flawed credit records, a lack of effective collateral, and weak income stability or continuity—constraints that traditional credit models struggle to cover. Simultaneously, consumer finance products suffer from serious homogenization and insufficient integration into consumption scenarios. There is a lack of credit financial instruments and differentiated risk pricing mechanisms that match upgrading consumption fields such as education, elderly care, health, and cultural tourism.
For enterprises, a gap remains in the supply of medium-to-long-term capital to ensure they "want to invest, can invest, and can invest well." Expanding domestic demand cannot occur without the drive of effective investment. In the first 11 months of 2025, RMB loans increased by 15.36 trillion yuan, of which medium-to-long-term loans to enterprises and public institutions increased by 8.49 trillion yuan. Financing demand was robust in areas such as manufacturing technological upgrading, green energy, and the digital economy. However, research finds that many small and medium-sized manufacturing enterprises and "Little Giant" enterprises (specialized, refined, differential, and innovative) still face difficulties with financing maturity mismatches. Banks prefer to provide short-term liquidity loans, whereas equipment renewals and the intelligent transformation of production lines often require capital with longer cycles. This structural maturity mismatch pushes up the comprehensive financing costs for enterprises and leads to short-termism in investment decisions. This creates a supply gap in medium-to-long-term capital between the enterprise's "willingness" to invest, "ability" to invest, and the "effectiveness" of that investment.
For financial institutions, the motivation and ability to be "willing to lend, capable of risk control, and skilled at service" need improvement. Currently, commercial banks generally face the dual challenge of narrowing net interest margins and rising pressure on the generation of non-performing assets (NPAs). In the fourth quarter of 2025, several banks concentrated on listing NPAs—such as credit card overdrafts and personal consumption loans—at the Banking Credit Assets Registration and Circulation Center, reflecting the pressure on retail credit asset quality management. Although efforts to increase financial support for key consumption areas have continued for several years, it will take time for foundational work—such as risk perception adjustments, data governance capacity enhancement, and the construction of intelligent risk control models—to yield results. Under current conditions, the risk control costs for financial institutions to serve the "long-tail" of customers in consumer credit, small and micro loans, and tech-innovation loans are significantly higher than those for standardized business.
Systemic Efforts to Enhance Quality and Efficiency
Solving the aforementioned problems clearly cannot rely on piecemeal, local adjustments. Instead, it requires driving systemic reforms oriented toward enhancing the quality and efficiency of services for the real economy, guaranteed by risk-sharing mechanisms, and focused on the key task of enhancing medium-to-long-term investment and financing matching capabilities. We must push financial resources to shift from short-term liquidity supply toward medium-to-long-term support for manufacturing technological upgrading, the cultivation of strategic emerging industries, and innovation in consumption scenarios, and from standardized credit allocation toward precise and differentiated support.
First, we must strengthen coordination to promote the joint force of fiscal and monetary policies. The coordination of fiscal and monetary policies is an important prerequisite for improving the effectiveness of financial support in expanding domestic demand. In 2025, the International Monetary Fund and the World Bank raised their forecasts for China’s economic growth rate to around 5%; a series of macroeconomic policy measures taken by our country was key to these upward revisions. In the next stage, we should further strengthen policy coordination. On one hand, we should expand targeted support functions within the existing re-lending framework. We can explore creating special re-lending tools for the consumption sector or setting aside specific credit quotas for consumption within existing structural tools to provide targeted support for financial institutions issuing loans for automobiles, home renovations, and county-level trade and circulation. On the other hand, we should push fiscal interest subsidies and risk compensation funds to the grassroots level. We should consider supporting eligible regions—within their fiscal capacity—to rely on local government financing guarantee systems to establish consumption credit risk-sharing mechanisms tailored to local conditions. This would involve providing stepped compensation for actual losses on credit-based consumption loans issued by commercial banks, linked with the construction of the credit reporting system to avoid moral hazard and effectively eliminate the "fear of lending" among banks. Furthermore, we need to optimize the "baton" of regulatory assessment; we could consider using the growth rate of inclusive consumption loans and the availability of credit in counties and rural areas as important reference indicators for evaluating the quality and efficiency of services for the real economy within the inclusive finance service efficiency assessment system.
Second, we must deepen reform to enhance the ability of financial institutions to support domestic demand. Financial institutions are the "capillaries" of the financial system and the important carriers for policy implementation; effectively enhancing their capabilities is crucial. On one hand, we can promote the transition of commercial banks’ credit models from "collateral dependence" to "credit-driven." Relying on the continuously improving national integrated government big data system and the basic financial credit information database, we can form digital credit profiles covering all types of market entities. On this basis, we should institutionally promote flexible fund-use models such as "repaying loans without principal" [4] and "borrowing and repaying anytime" to normalize the reduction of financing turnover costs for small and micro enterprises. We must precisely align with the one-time credit repair policy released by the PBOC in December 2025, carrying out credit information adjustments in accordance with laws and regulations, and effectively implementing the "enjoy without application" [5] requirement to provide efficient, fair, and predictable credit reconstruction channels for eligible entities with short-term defaults. On the other hand, we should prudently expand the compliant paths for the deep integration of consumer finance and the real economy. We should consider supporting commercial banks in conducting secure and controllable technological synergy with licensed tech companies—under the premise of performing independent risk control duties—to explore credit service optimization based on authentic transaction backgrounds.
Third, we must improve the ecosystem to achieve multi-party coordination among the government, market, and society. Expanding domestic demand is a systematic project that requires holistic consideration and a multi-pronged approach. First, we could consider jointly building information service platforms to integrate consumption promotion policies from various departments, commercial district activities from different localities, promotion information from key enterprises, and preferential products from financial institutions to solve the problem of information asymmetry between supply and demand. Second, we should innovate the ways financial support is provided for rural revitalization and county-level economic development. We can support commercial banks in establishing county-level inclusive finance specialized agencies or characteristic service outlets based on county-level corporate banking institutions. Under the premise of strictly following prudential regulatory requirements and using their own risk control models for credit decisions, they can combine this with local government infrastructure construction (such as cold-chain logistics and e-commerce live-streaming bases) to form a support mechanism of "capital + technology + channel + brand," while simultaneously improving the "government-bank-guarantee" risk-sharing mechanism. Third, we should fully leverage the hub function of the capital market to provide a "green channel" for market financing for eligible consumer enterprises. We should include community-type shopping centers and standardized community commercial centers—those with clear ownership, market-oriented operating entities, stable cash flows, and alignment with national industrial policies—into the pilot scope of Real Estate Investment Trusts (REITs) for consumption infrastructure to revitalize existing assets and leverage incremental growth.
(The authors are respectively a special guest researcher at the CASS Research Center for Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and a professor at Zhongnan University of Economics and Law.)
Source: Economic Daily (January 13, 2026) Online Editor: Hui Hui