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Regulations on Big Tech companies have forced them to scale back fintech operations, but a growing number of smaller lending firms are feeding Chinese consumers’ appetite for borrowing. Illustration: Perry Tse

‘Too easy to borrow’: debt plagues young people despite China’s scrutiny of fintech microloans

  • As Beijing’s tough stance on online credit persuaded Big Tech firms to scale back their services, smaller platforms have proliferated
  • Experts say online loans leave consumers vulnerable, as they can easily sign onto debt carrying high interest rates and unfair conditions

Gary Wang, 25, could not pay for all his purchases, but he kept buying anyway. The smartphones and clothes that appeared on the Chinese apps he used for watching short videos or ordering takeaways seemed too good to miss, and the platforms offered easy credit.

“It is a lot easier to borrow from platforms than acquaintances,” said Wang, a software tester living in the landlocked Hubei province, who earns a monthly income of 8,000 yuan (US$1,191).

By the time he realised he could not afford his lifestyle, he had already taken out 150,000 yuan in loans, mostly to dine out and cover his then-girlfriend’s expenses.

How China’s microlenders brought an ancient practice into the digital age

China has in recent years tried to rein in the nation’s online credit and consumer loan market, putting fintech businesses – including Ant Group, whose microcredit service once reached at least 350 million borrowers – under the same regulatory requirements as traditional banks. But the habit of “buy now, pay later” has nonetheless taken root among the younger generation.

(Ant Group is an affiliate of Alibaba Group Holding, owner of the South China Morning Post.)

“Online loan services basically took over every app you can access on your phone, so that you will think of them whenever you pay,” Wu Ying, a Guangzhou-based medical technician who only provided a pseudonym, said.

The 26-year-old first borrowed to cover her online purchases. As the bills piled up, she turned to more channels for credit, eventually accumulating debts across nine platforms including Ant Group’s Alipay, Meituan, ByteDance’s Douyin and Qihoo 360.

As Beijing’s tough stance on online credit persuaded many Big Tech firms to scale back their related operations, smaller services have proliferated. It is virtually impossible for the government to stamp out all of them because many are flying under the radar, according to analysts and consumers.

Citizens visit Wangfujing Street, a landmark commercial street in Beijing, on July 6, 2022. Photo: Xinhua

China’s underdeveloped banking system has enabled the existence of a vast private lending grey market. And while the older generation may choose to borrow from family members, the digitally savvy Generation Z is used to seeking help online.

“It was too easy to borrow [from internet platforms],” said a debtor surnamed Xia, living in Hubei province. “It was like transferring money from your own account.”

One of the apps that Xia used to cover his sports betting debt was Youqianhua, literally translating as “I have money to spend”. The service, under search giant Baidu’s fintech spin-off Duxiaoman, promises to approve a loan application in as short as 30 seconds, according to the app’s website.

That is much easier than getting a bank loan, which usually requires collateral and paperwork. Most online credit services simply request an ID number and other basic personal information.

While conventional banks have been trying to catch up by offering quicker and easier consumer credit with their own apps, these established institutions remain unlikely choices for young consumers who rarely visit physical bank branches or open banking apps.

“Internet companies can make money with microloans because domestic banks seem to lack the willingness and effort to pursue the sector,” said Bao Linghao, a senior analyst at research firm Trivium China.
Traditional credit cards still make up most consumer credit in China, but fintech platforms made up a fifth of the market last year. Graphic: SCMP

For many internet service providers, offering consumer credit can also facilitate their mainstream business: when a consumer considers whether to subscribe to a video-streaming service, or buy a handbag from an e-commerce platform, the availability of easy credit can make all the difference.

Platforms such as online travel agency, short video app Kuaishou and e-commerce platform Pinduoduo all offer access to consumer credit.

According to data from the People’s Bank of China, outstanding consumer loans at the nation’s licensed financial institutions stood at 9 trillion yuan as at the end of May, making up less than 5 per cent of the country’s total outstanding loans of 200 trillion yuan.

Consumer loans granted by Chinese online platforms could have amounted to 2 trillion yuan as of the end of last year, according to estimates by research firm iResearch. The government does not publish statistics on microloans from online platforms.

Tang Yinan, a research fellow at Fudan University’s China Institute, said online credit services leave consumers vulnerable, as they can easily sign onto debt carrying high interest rates and unfair conditions, such as additional charges.

“A regulatory question that cannot be ignored is whether big data is creating or disseminating risks,” Tang said.


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A car salesman based in the coastal province of Jiangsu, who declined to be named, said he signed two contracts when he applied for credit through the Twitter-like blogging platform Weibo. One loan came with an 8 per cent interest rate, while the other entailed a 14 per cent service charge with Weibo acting as a guarantor.

The total costs of the two loans, along with other extra charges, amounted to 22.4 per cent, in addition to the principal of 10,000 yuan.

On the first day that the debt became overdue, the man said collectors promptly sent him a text message at 8am, and his phone started ringing at 9am.

“I was filled with anxiety and remorse, but I was the one who took the wrong path,” he said. “There were endless threats and debt collection calls from strange numbers across China.”

The debt collectors later identified him on social media, which he said caused him a lot of mental stress. He eventually paid back his loans with the help of his family and vowed to never repeat his mistake.

It is a common practice for lenders to outsource debt collection. Weibo did not respond to email inquiries about its policies.

The market penetration rate for online microlending services reached nearly 70 per cent in 2021, according to iResearch. Graphic: SCMP

Online consumer credit took off in China thanks partly to the proliferation of smartphones. With a few swipes on the screen, people now have easier access to borrowed money than they ever had. The penetration rate of online microlending has grown rapidly from 0.4 per cent in 2014 to 69.2 per cent in 2021, according to iResearch.

The boom has boosted consumer spending in China and brought credit services to populations that are usually left out by the traditional banking system, in line with the government’s strategic vision.

“There’s an overall trend of online consumer debt services moving down to lower-tier cities and cheaper goods,” said Jefferies Hong Kong analyst Chen Shujin, who said she recently saw nomads in the Xinjiang Uygur autonomous region using these services.

But the fintech industry has also brought disruptions and generated financial risks that rattled Beijing. Peer-to-peer (P2P) lending schemes in China, for instance, witnessed a boom-and-bust cycle in just a few years, leaving behind a pile of bad debt.

Even with Beijing’s renewed scrutiny of fintech, concerns remain.

In 2016, online platforms loaned out a quarter of the money that offered from traditional financial institutions, according to iResearch. By 2021, online platforms made up half of the market. Graphic: SCMP
Duxiaoman, for instance, provides an interface for Chinese users to put their money into a small rural bank in central Henan province in return for higher interest rates. After the bank banned depositors from withdrawing money in April, large protests ensued.

Duxiaoman said the interface is maintained by the bank.

Critics of the online credit market question whether platforms are underestimating the risks of their loans. While the industry has helped some needy borrowers alleviate financial troubles, it also encourages overspending and has left many young citizens buried in unaffordable debts.

The number of people deemed “untrustworthy” by the government, which include those who are unable to repay their debts, has risen to over 7.5 million – or 0.5 per cent of the population – more than doubled from three million in 2015, according to statistics released by the government.

Beijing has made it clear that all financial activities must be brought under supervision, but it proves to be an ongoing battle.

“Financial regulations usually lag behind technological innovation in the finance sector,” said Yan Hongting, a lecturer at the School of Law and Politics at Zhejiang Sci-Tech University.

Micro loans are hot because Gen Zs think ‘buy now pay later’ is cool

The much anticipated Guidelines for Non-Savings Lenders, first proposed in 2015, has yet to be released.

“To respond to the rapid development of the industry, China should speed up the construction of a tech regulatory framework to protect the rights of financial consumers, as well as the safety and stability of the country’s financial system,” Yan said.

As more Chinese consumers got their fingers burnt in past interactions with online credit services, there is now a reverse trend of people cutting back on debts and spending.

The Guangzhou-based medical technician, who is still trying to pay off all her loans – a process known colloquially as “climbing onshore” – said the country should regulate microloan advertising and marketing, which first drew her to online credit services.

She also hoped that relevant departments can come up with a standard interest rate for these platforms, and forbid any borrower from getting a new loan before clearing their previous debts “so that there won’t be broken homes, and social stability won’t be affected”.

“China has been very cautious when it comes to regulating high-interest loans, but the attitude may shift along with economic directions,” Jefferies’ Chen said, adding that the government was stricter when the economy was good, such as in 2017 and 2018 when authorities carried out a crackdown on P2P lending.

How China’s P2P purge has left millions of investors in debt and desperate

However, as the economy weakens and the youth unemployment rate reaches a new high, some people believe the online credit industry serves a purpose.

A small gym owner in Shanghai, who declined to be named, said he took out online loans in 2020 because his employer at the time stopped paying his salary. He cleared his debt earlier this year, but then found himself unable to pay his own employees when the city forced all gyms to close during a Covid-19 outbreak from April to June.

He said he was sympathetic to people who had yet to “climb onshore”.

“[The prevalence of microlending] has a lot to do with the macro economic environment,” he said. “If people can receive their salaries, who would turn to online loans?”

Wang, the software tester, said he has no concrete plan as to how he would pay back the money he borrowed before Covid-19 swept through the world.

“I can only earn a little and pay a little,” he said. “But they won’t allow you to pay less just because you’re poor.”