China to tighten regulation of fintech consumer loans

China to tighten regulation of fintech consumer loans

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China is preparing to tighten regulation of online consumer lending as part of a campaign against financial risks, dealing a possible setback to Chinese fintech groups that hope to sell shares in the US.

Household debt in China remains low as a share of GDP, and authorities have encouraged growth of consumer credit as a way to rebalance the economy towards consumer spending, but now concerns are rising about irresponsible lending practices online. 

At a forum on internet finance on Saturday, a central bank official said that regulatory agencies will guard against risks from rapid growth of consumer lending. 

“The public has doubts about its operating model and has appealed for it to be brought under regulation,” Ji Zhihong, head of the financial Markets department at the People’s Bank of China, said of the industry. “In order to prevent and resolve the related risks, the central bank is working with the related departments to deal specifically with risks from internet finance.” 

Online consumer lending has replaced peer-to-peer lending as the trendy new area in Chinese fintech, as a regulatory crackdown on P2P reduced that sector’s profitability. Short-term consumer loans outstanding in China grew by Rmb1.49tn ($225bn) through the first nine months of this year, compared to an increase of Rmb830bn for all of 2016, according to PBoC data. 

Online lender Qudian, backed by Alibaba Group affiliate Ant Financial, raised $900m this month in an initial public offering on Nasdaq, the largest IPO in the US by a Chinese company this year. Qudian’s shares jumped as much as 48 per cent on their trading debut on October 18, but on Friday they had dropped below the IPO price, due in part to Investor concerns about tighter regulations. 

Qudian lets students and young professionals buy mobile phones, laptops and other gadgets on monthly instalments. Launched in 2014, Qudian began by lending to students, but regulators banned such lending last year following a series of scandals including the use of nude photos as collateral. Since then Qudian has ostensibly shifted to white-collar workers, but some Investors worry that students may still be among its clients. 

Caixin, a respected financial news website, reported on Saturday that the China Banking Regulatory Commission is drafting a comprehensive regulatory framework on internet consumer lending, citing unnamed sources. 

Neither Qudian nor the CBRC responded to request for comment on Sunday. 

Regulators have also moved in recent weeks to crack down on consumer loans being illegally channelled into the property Market as mortgage downpayments. 

A district government in Shanghai called a meeting with consumer loan companies recently in which it warned them against abusive practices, including use of violence to press borrowers for repayment and charging annualised interest above the legal maximum of 36 per cent, Caixin also reported.

At least three Qudian rivals — Paipaidai, Hexindai, and Lexin Fintech — have also filed for US listings. Lexin is backed by e-commerce group, which in March spun off its own lending unit as an independent company, JD Finance, in a $2.1bn deal.

Additional reporting by Yizhen Jia

Twitter: @gabewildau


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