Beijing has authorised billionaire Jack Ma Yun's Alibaba Group to expand funding for its online loans business, which is designed to shake up an industry divided into heavily regulated state banks on the one hand and shady financing schemes on the other.
The Chinese Securities Regulatory Commission approved the sale of up to five billion yuan (HK$6.27 billion) of notes backed by loans from Alibaba, according to a July 8 filing.
Since starting its microloans business three years ago, Alibaba has extended more than 100 billion yuan of financing to more than 320,000 small online businesses and entrepreneurs, the firm said.
Ma said an outsider was needed to "stir things up" after restrictions on bank credit spurred property developers and entrepreneurs to seek funds from unauthorised lenders.
Regulators have sought to reduce the risks in "shadow banking", which has assets of 36 trillion yuan, according to JP Morgan Chase estimates, by forcing more products to be publicly traded and squeezing access to funding.
"The government wants something that is more effective," said Victor Wang, a Hong Kong-based analyst at Macquarie.
"The loans that Alibaba offers are all for small and micro enterprises, which is something that the government wants. Traditional banks usually cater to state-owned enterprises."