Mini-Loans Have Spurred a Business—And Debt—Boom in China
October 29, 2019
A customer looks at souvenirs on display at a store in the Yuyuan Bazaar district of Shanghai. Photographer: Qilai Shen/Bloomberg
Determined to start his own business, but reluctant to ask family or friends for money, Zhang Peng turned to online lender Jiebei for 30,000 yuan ($4,260) to open a shop selling nuts.
Interest on the one-year loan was 18%, and Zhang struggled with the payments at first. But it got him started. Now, two years later and still aged only 22, he owns a Mercedes and plans to open a second store in his hometown of Yucheng, near the coast.
Leveraging the massive online population and advanced e-commerce ecosystem, an upstart fintech industry has sprung up in China. A plethora of new platforms offer ways for entrepreneurs and households to get credit – liberating them from the stranglehold of the state-owned banking system.
How China Scores on The New Economy Drivers and Disrupters Index
Higher score indicates better performance
High-income economies average
Low- and middle-income economies average
DISRUPTERS
DRIVERS
Online giant Alibaba Group only set up MYBank in 2015, but it’s already provided micro loans worth more than 2 trillion yuan to some 16 million small businesses. It offers non-collateral credit via a model known as “3-1-0": 3 minutes to apply, 1 second to approve, 0 humans involved.
That’s possible because of the reams of data accumulated by Alibaba’s Taobao.com online shopping platform, one of the world’s biggest. Taobao gave small businesses access to consumer markets. MYbank can scrutinize those transactions to assess the creditworthiness of both sides, which traditional banks had struggled to do—and improve access to loans.
The result has been to wring out greater efficiencies from China’s private sector. Comprised mostly of small and medium-sized enterprises, it accounts for 60 percent of GDP and 80 percent of jobs. Yet it had been starved of credit, despite official efforts to funnel more loans, because state banks prefer lending to lower-risk (but less efficient) companies that are owned by the government.
Opportunities for consumers to borrow have also mushroomed, with unsecured consumer lending growing at about 20% a year over the past decade. That’s boosted consumption, helping to rebalance the economy away from China’s traditional reliance on investment and exports.
nd there’s room to run: Consulting firm IResearch projects that online consumer finance will more than double to 19 trillion yuan by 2021.
Former Chinese leader Deng Xiaoping once said that when a window is opened, some flies will come in—and so it has been with the opening of China’s financial system.
Regulators last year launched a crackdown on peer-to-peer lending after some platforms failed, triggering protests from angry investors. And easier access to credit, especially for young consumers, has pushed household debt above 50% of GDP. That’s still low by global standards, but when added to China’s pile of business debt, it’s enough to worry some analysts.
And some of the borrowers. Gao Jiacheng, 28, from Xian in northwest China, says he spends on average 5,000 yuan a month borrowed from online lender Huabei – on top of 10,000 yuan on his credit card.
When the bills arrive every month, he says, “I suddenly realize: ‘Oh my God, did I really spend that much?’”
No comments:
Post a Comment