Strict risk control key to survival for booming internet financing newcomers

Experts expect to see more traditional lenders being given the impetus to develop into the consumer financing segment, while the dedicated internet finance players are likely to be tamed and face tougher regulation

PUBLISHED : Friday, 26 May, 2017, 11:41am
UPDATED : Friday, 26 May, 2017, 10:45pm

Regulatory conditions and tight risk controls hold the keys to the successful future of China’s burgeoning consumer financing industry, leading financiers have told a two-day forum in Shanghai.

China’s consumer finance sector is growing rapidly with people increasingly buying goods on credit, especially the tech-savvy younger generation, leading to the creation of more online lenders offering financing.

“The [government’s] regulatory stance is of decisive significance to the growth of consumer financing in China,” said Gao Qiao, general manager of consumer finance of Zhejiang Tailong Commercial Bank at the China Consumer Finance Development Conference, which wraps up on Friday.

Beijing has been playing up the idea of what it is calling “inclusive finance” – helping more people, especially rural residents and low-income workers, gain access to funds – in the hope that this could help spur economic activity by boosting rural consumer spending, and reduce poverty.

Yet the sizzling growth of internet-based lending is also being eclipsed by irregularities such as unreasonably high interest rates and problematic overdue loans, that triggered a regulatory clampdown on the sector earlier this year.

Gao said he expected regulators to push traditional commercial banks harder to improve their levels of consumer financing, while maintaining a watchful eye and tighter controls on internet consumer financing to keep its rampant growth in check.

Millennials’ (unhealthy?) appetite for debt spurs Chinese consumer financing boom

“We will see more traditional lenders being given the impetus to develop the consumer financing segment, while the [aggressive] dedicated internet finance players themselves are likely to be tamed and face tougher regulation,” he said, admitting that many banks are now lagging well behind their internet rivals, when it comes to services such as the speed of loan extension, and customer services.

Increasingly consumers who fail to obtain loans from banks, are also turning to other players including the country’s internet giants – including South China Morning Post owner Alibaba, and Tencent – who have quickly got into their stride by offering small loans to consumers – filling the gaps being left by the banks, and in some cases even eating into lenders’ existing business lines.

Tight risk control, however, holds the key for survival for the internet financing newcomers, industry players say.

Li Chen, chief executive of, said teaming up with a particular economic sector is proving a popular method of growing business, offering credit to a targeted industry such as education which is backed by real consumption, meaning less risk or likelihood of credit fraud.

Wang Ronghui, general manager of Baotou Baoyin Consumer Finance, said household leverage currently sits at 42 per cent in China, leaving enough space for growth compared with 76 per cent in developed nations.

“We see strong consumer financing demands that are still not covered by traditional financial institutions,” Wang said, noting its clients are mainly aged between 22 to 35 years with an average lending of 10,000 (US$1,456) to 30,000 yuan.

More than a dozen consumer finance firms – who are still not allowed to take deposits – have opened in China so far and more are applying for licences to do so.

Investors in such firms include banks, retailers, home appliance makers and insurers.

China’s economy grew 6.9 per cent in the first quarter, while the retail sales gained at a fast pace of 10 per cent in the same period.