Summary:
China's economy continues to face substantial downward pressure. In this context, the 2024 Central Economic Work Conference emphasized the importance of implementing a “moderately loose monetary policy,” while identifying “vigorously boost consumption, enhance investment efficiency, and comprehensively expand domestic demand” as the primary objectives of future economic planning. One of the primary objectives of monetary policy is to promote economic growth, with investment and consumption serving as the key drivers of this growth. Therefore, it is essential to ensure the effective of the monetary policy transmission mechanism in order to maximize the effectiveness of a moderately loose policy in stimulating consumption. In recent years, China's interest rate liberalization reforms have progressed steadily, facilitating the relatively smooth transmission of monetary policy from intermediate targets to market interest rates. However, the transmission of market interest rates to the real economy has mainly occurred through corporate investment, whereas the transmission effect via household consumption remains underdeveloped. The transmission of market interest rates to consumption has been heavily dependent on traditional banks, which determine how policy rate information is conveyed to deposit and loan rates. This process demonstrates a degree of rigidity: on the deposit side, traditional banks typically leverage their strong market position to keep deposit rates as stable as possible, ensuring the stability of their funding sources. On the loan side, banks' consumer credit marketing practices often lead customers to overlook loan rate information. This situation results in low public awareness of changes in market interest rates, which may constrain the effectiveness of monetary policy transmission. The rapid development of FinTech enables households to easily access a wide range of products on major tech platforms, enhancing the accessibility and convenience of financial services. Compared to traditional banking products, FinTech offerings face greater competition and more efficient pricing, which allows interest rates to more accurately reflect market rates. Consequently, FinTech adoption may increase residents' sensitivity to market interest rates, enhancing the efficiency of their transmission to household consumption. From this perspective, does FinTech facilitate the transmission of monetary policy to consumption？ If so, what is the underlying transmission mechanism？ Clarifying these questions holds substantial theoretical value and policy implications for improving the efficiency of China's monetary policy transmission. Therefore, building on Aiyagari's (1994) household consumption decision model, this paper integrates FinTech factors to capture household sensitivity to market interest rates. This clarifies the theoretical mechanism by which FinTech facilitates the transmission of monetary policy to consumption. Furthermore, using Ant Group's micro-level dataset, we empirically investigate the impact of FinTech on the transmission of monetary policy to consumption. This study draws the following main conclusions: First, frequent use of FinTech products amplifies the impact of accommodative monetary policy on consumption. This suggests that FinTech reduces frictions in interest rate transmission, enhances sensitivity to market rate changes, and strengthens the direct impact of monetary policy on consumption. Second, frequent use of a FinTech platform's digital asset products increases consumption by reducing digital savings under accommodative monetary policy, indicating that the policy operates through the savings substitution channel. Third, frequent use of a FinTech platform's digital credit products boosts consumption by expanding digital consumer credit under accommodative monetary policy. This evidence suggests that monetary policy influences consumption through the credit cost channel, which exhibits asymmetric effects. This paper makes three primary contributions. First, it analyzes the direct effect of monetary policy on household consumption, emphasizing FinTech's role in enhancing market interest rate transmission and deepening our understanding of its impact. Second, it integrates FinTech's impact on household interest rate sensitivity into a benchmark consumption model, providing a flexible framework for future research on FinTech's influence on household decisions. Third, it uses unique micro-panel data from Ant Group to investigate how FinTech enhances transmission of the monetary policy to consumption, providing micro-level evidence of FinTech's role in macroeconomic regulation and contributing to the development of a theoretical framework for FinTech-enabled macroeconomic policy in China.
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