China’s new microlending curbs do not address underlying issue of household debt and borrowing, analysts say
- China’s regulators recently issued new rules targeting big fintech firms, but other sources of lending remain abundant for those who need cash
- Nation’s banking and insurance regulator is warning consumers not to fall into the trap of ‘uncontrolled and blind consumption’
New rules intended to rein in China’s booming microlending market may force a number of online platforms out of business, but analysts say it will do little to curb rising household debt, nor completely stop young people from borrowing.
The nation’s banking and insurance regulator seems well aware of this, to the point that it was compelled this week to issue a risk alert – imploring consumers not to fall into the trap of “uncontrolled and blind consumption” amid excessive lending from online lenders.
Previously, these online microlending firms enjoyed little oversight. And some such institutions and internet platforms, the regulators said, have intentionally blurred the actual cost of such lending by marketing consumer loan products as free of interest. Misinforming the public in this way, they said, is particularly dangerous to young people who tend to be more likely to live beyond their means by borrowing money.
There are currently more than 7,000 traditional microlending firms in China, which mainly operate locally, as well as more than 200 licensed online microlenders and more than 20 licensed consumer finance firms, according to government data.