China's Internet Loans Are Reviving

Beijing and Shanghai (Reuters) - China’s internet platforms are quietly reviving consumer loans, interpreting the government's efforts to reduce household debt as a signal that regulators may ease the long-standing pressure on the sector.

In 2020, Beijing canceled the IPO of Ant Group, linked to Alibaba, to monitor the "disorderly expansion" of internet platforms, subsequently imposing restructuring orders and fines on Ant and others. However, in August, to address a significant need, China introduced consumer loan interest subsidies, identifying Ant and Tencent-backed WeBank as lenders providing affordable credit alongside traditional banks.

The internet platforms interpreted this move and the high-level meetings between China's leaders and prominent private sector executives as a green light for cautious expansion in consumer loans.

A sector source stated, "The regulatory environment has become more tolerant." "Given the current economic conditions are tough, the economy has to rely on large internet financial platforms."

Another source reflected similar sentiments, stating, "Expansion is no longer a strategic choice or a regulatory constraint." China's Ministry of Finance and the National Financial Regulatory Administration declined to comment immediately.

While analysts and industry executives noted that a more stable regulatory environment positions companies like Ant, food delivery firm Meituan, and TikTok's owner ByteDance for faster growth and higher profit margins, they warned that Beijing could tighten restrictions again if default rates rise.

UBS predicts that loans issued via online platforms will reach 5.4 trillion yuan ($758 billion) by 2025, an increase of 7.6% from last year, and continue to grow at a compound annual growth rate of 7.4% until 2029.

The sector as a whole is expected to account for about a quarter of total consumer loans, with profits expected to rise by 9.8% to nearly 110 billion yuan this year.

May Yan from Greater China financial research noted that the "dramatic tightening" in regulations has come to an end, saying, "This is good for the sector."

Consumer loans surged in the 2010s in an "expansion first, regulation later" environment, while Ant’s abrupt IPO halt forced fintech giants to incorporate financial services into separate holding companies. As of 2023, regulators announced that 14 major platforms had completed their restructuring, but firms have remained cautious.

The caution began to ease earlier this year with Jack Ma, the founder of Alibaba, attending an entrepreneurs’ meeting under President Xi Jinping.

A sector source stated, “The overall trend of the regulatory environment is improving compared to a few years ago.” While China's financial sector remains risk-averse, there is an emerging belief in consumer subsidies that indirectly promote growth.

Senior Research Director Christopher Beddor pointed out that consumer loan defaults have begun to rise. Chinese banks and consumer finance firms reported offering 74.3 billion yuan worth of non-performing loans for sale in the first quarter, a 190% increase. Consumer loans make up about 70% of these non-performing debts.

Some borrowers seeking online loans to resolve these issues used the credit to refinance debts or speculate in stock markets. Car dealer Max Luo from Fuzhou was unable to repay his debt of 150,000 yuan owed to internet platforms. A carpenter named Liao Kui borrowed 300,000 yuan at an interest rate of 1.5%, speculating in gold and foreign exchange markets, but lost all his earnings due to defaults.

"These platforms seem attractive with low repayment pressure promises and instant approvals," said Liao, discussing the difficulties in his business. "After making three payments, I just gave up. I have no savings left, only debt."