Chinese regulators who have targeted the sprawling Ant Group and the country’s growing online lending sector are motivated in part by a desire to curtail what they see as out-of-control borrowing by the country’s young people — the same consumers who have helped drive the country’s economic growth, The Wall Street Journal (WSJ) reported.
WSJ reported that prior to the pandemic, young shoppers were taking on short-term loans to buy products, such as expensive cosmetics, electronic gadgets and fancy meals at restaurants. Those young consumers were snapping up debt that didn’t require traditional credit cards.
About half of short-term loans in China in 2019 were made under the new digital arrangements, according to Fitch Ratings data cited by WSJ.
One feature of those loans, WSJ reported, has been that the issuers — Ant Group, for example — did not hold significant stakes in them. But under regulations set to take effect in 2022, companies issuing loans will have to hold at least 30 percent stakes in them.
“As long as internet platforms conduct financial operations, the requirement of capital adequacy ratio on them should be the same as financial institutions,” Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said when new requirement was announced, per PYMNTS. “Starting a business needs capital, so does starting a financial business.”
Meanwhile, WSJ reported what it called a “grass-roots campaign on Chinese social media” is urging young people to free themselves of debt.
Daniel Zhi, a partner at KPMG China, reportedly told WSJ: “A top-down crackdown on overspending has prompted a national soul-searching [that has] put a lid on the whole online-lending industry.”
As an example of the government’s crackdown, WSJ cited a November column posted by Guo Wuping, an official with China’s banking and insurance regulator, who reportedly wrote that new online loan products were causing “some low-income people and young people to fall into debt traps.”
According to WSJ, Ant, controlled by billionaire Jack Ma, held $267 billion consumer loans — about a fifth of the country’s short-term household debt — as of June. Much of the funding for loans offered through Ant’s Huabei and Jiebei products — they translate to “just spend” and “just borrow” — is spread across about 100 banks.
WSJ reported that Ant declined its request for comment but recently outlined plans for changing the way it runs its digital lending business.
Ma’s Alibaba, often called “the Amazon of China,” has run afoul of regulators lately but also employs 110,000 people and is a source of considerable national pride, PYMNTS reported.
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