Chinese bankers are preparing to set up finance companies that provide consumer loans in major cities like Beijing and Shanghai. The reason? If people do not have enough cash on hand to buy goods, they can get loans from the finance companies without mortgaging their homes or putting up other collateral.

The creation of such companies are one of the measures that the government is taking to boost consumption during the economic downturn. The China Banking Regulatory Commission recently submitted a proposal to the government to establish consumer finance institutions, according to Xinhua News Agency. At present, it has completed the trial management rules for such finance institutions, which stipulate that the maximum loan amount the finance institutions can issue to consumers will be limited to five times their monthly income to prevent excessive consumption. Economists say the new move will help promote domestic consumption by making bank credit more easily available to consumers.

Establishing consumer finance companies is only one of the government's policies to expand domestic demand. Since the Chinese Government launched its 4-trillion-yuan ($584.8 billion) fiscal and economic stimulus plan in November 2008, several ministries and commissions under the State Council have formulated various support measures.

Li Gang, an analyst at China Securities Co. Ltd., told Beijing Review that given the financial crisis, China's current economic growth pattern driven by exports and investment won't work. According to statistics released by the General Administration of Customs, China's exports and imports totaled $189.89 billion in November 2008, a year-on-year decline of 9 percent. Of the total, exports stood at $115 billion, a 2.2-percent decrease, while imports were valued at $74.9 billion, down 17.9 percent. This was the first time in recent years that China's monthly records of exports and imports both declined.

Whenever exports slide, investment growth lacks stamina and drops off. According to the National Bureau of Statistics, fixed asset investment from January to November 2008 grew 26.8 percent over the same period a year ago, which was 0.4 percentage points lower than the growth rate in the first 10 months. Under the circumstances of slackening market prospects, financing difficulties and declining profits, corporations have reduced their intentions and capabilities to invest.

"From a long-term view, the key to ensuring sustained and sound economic growth is to drive up domestic demand," Li said. "And this is why the Chinese Government has launched mass measures to stimulate consumption and boost domestic demand."

Besides establishing consumer finance companies in big cities, the government also has created a policy of offering subsidies for home appliance purchases by rural households to stimulate consumption in those areas. According to the policy, the government has signed cooperative agreements with some leading household appliance makers which will provide products suitable for rural demand, such as color television sets, refrigerators, washing machines and mobile phones. The prices of these products must be within the price range required by the government. When farmers buy these products, they receive subsidies that cover 13 percent of the value of their purchases.

The pilot phase of the program was started in three major agricultural provinces-Shandong, Henan and Sichuan-in November 2007. As of this February 1, it will begin in all other rural areas of the country and run until the end of November 2012, according to the Ministry of Commerce. The ministry estimates that this program can create sales of 480 million home appliances and drive up consumption by 920 billion yuan ($134.5 billion), with the latter figure accounting for 3.7 percent of China's GDP in 2007.