Two Chinese banks compete for consumer credit operation in Shanghai

Backed by the central government, the winner between Bank of China and the Bank of Shanghai will offer loans at cheaper rates aimed to boost economy.

"Consumer credit is a significant step to boost domestic demand as China tries to improve its economic structure," said Lu Zhengwei, the Industrial Bank's senior economist, as stated in a report in Shanghai Daily. "The shift is more urgent because China is feeling the pinch of the global credit crunch."

Shanghai, Beijing, Chengdu and Tianjin were selected last month by the central government to start on a trial basis consumer credit companies that will offer loans at cheaper rates than generally available now.

The Chinese are well-known for their frugality. It took years before individual mortgages and auto loans took hold after they were introduced in China about a decade ago.

But now that the global slowdown has impaired exports, China is turning to its consumers to stimulate the economy.