China’s youthful, debt – fueled spending causes a diversion

Many have used short-term loans to pay for expenses such as prestige cosmetics, electronic items and expensive restaurant meals. They found it easy to obtain credit, thanks to Ant and other Chinese financial technology companies that gave millions of people who did not have bank-issued credit cards unsecured loans. According to Fitch Ratings estimates, in 2019 there were as many as half of short-term consumer loans in China.

New financial regulations are forcing borrowers to reevaluate their business strategies and have led to a settlement over the U.S. borrowing and spending habits of the U.S. younger population in America. From 2022, Ant and its peers must finance at least 30% of the loans they make with banks, a rule aimed at making online borrowers bear more risks.

Over the past few weeks, a campaign on Chinese social media called “ashore” – a metaphor for getting out of debt – has gained steam, and people are sharing their experiences and regrets about spending too much and borrowing.

On the microblogging website Weibo and Xiaohongshu, another popular social media platform, people posted pictures of shredded credit cards and screenshots showing how they close their online credit facilities. Some described getting rid of debt by reducing daily expenses and avoiding unnecessary purchases.

“A top-down downturn in spending has led to a national soul-searching,” added Daniel Zhi, a partner at KPMG China, which leads its financial strategy consulting service, adding that the regulatory action has a lid on the entire online lending industry. ”

In November, a day before Ant’s initial public offering was presented, an official from a division of China’s banking and insurance regulator said that while consumption is a mainstay in the Chinese economy, financial institutions and fintech companies must act responsibly to protect the protection. the rights and interests of their consumers.

The official, Guo Wuping, said fintech companies allow people to borrow excessively, causing ‘some low-income people and young people to end up in debt traps.’ He described Ant’s Huabei virtual credit line service as inclusive, but not favorable, because some fees were higher than what banks charge on credit cards. Ant declined to comment.

Other Chinese state media have also criticized fintech platforms for encouraging young people to spend too much. Last month, a report by the Chinese central bank said the country was trying to increase domestic consumption without relying on consumer debt. The standard rates for short-term loans were low, but officials were concerned about the risks that could arise if excessive loans were not restricted.

Ant, which is controlled by billionaire Jack Ma, is China’s largest provider of online short-term consumer loans. The owner of the popular payment app Alipay has the amount of $ 267 billion in outstanding consumer loans since June, which is almost a fifth of China’s total short-term household debt.

Ant’s personal loan services Huabei and Jiebei – which means “just spend” and “just borrow”, were used by about half a billion Chinese citizens in the twelve months to June alone. Most of the financing is provided by about 100 banks and other commercial lenders that Ant has partnered with.

Mona Wang, a 27-year-old who works in the financial sector in central city Xi’an, said she owed the equivalent of more than $ 15,000 to various online lenders and banks, including Ant’s Huabei, late last year. and credit card issuers. The debt, which amounted to about 15 times her regular monthly income, was largely due to her spending on Salvatore Ferragamo shoes and other brands, she said.

A few months ago, during Alibaba Group Holding Ltd.

Wang said she used Huabei to use, among other things, bottles of fiery Moutai liquor, Lululemon yoga clothes, a Dyson hair dryer and a vacuum cleaner. “They just looked like bargains that you should not miss,” she said.

Me. Wang said she later realized she had stretched her money too much and had some sleepless nights. Fortunately, she said, a bonus she received in February helped her repay half of the debt, and she is now trying to carefully manage her expenses to pay off the rest.

Ant and his peers had previously offered advertisements that promoted liberal spending behavior. At the promotion of Huabei, which was presented in October last year, was a 37-year-old construction worker who took his daughter to a fancy restaurant for a birthday. Another showed a delivery man who used Huabei to buy a saxophone with the words, “Do not scratch at the things you love.”

Ant declined to comment on the ads. Since the issuance of the scholarship, the company and its top officials have said that they are rectifying their affairs and that Ant is making changes in lending. In December, the company said that credit limits for some younger borrowers had been reduced to promote more rational spending habits, without giving details.

On Friday, Ant set out a framework for how he would regulate his various digital finance businesses himself. As part of this, the company said it would lend responsibly and loans would not extend to young and low-income borrowers beyond the amounts needed to cover their basic cost of living.

Yuzhang Wang, 26, said his Huabei credit line had recently been lowered to about $ 2,500 from more than $ 4,600. Mr. Wang lost his job at a vocational training institute in Beijing last year and fell into arrears with more than $ 30,000 in debt, including from Huabei, for expenses such as Gucci and Versace accessories, iPhones and expensive dinners. He said debt collectors called him and his family and threatened legal action.

Mr. Wang returned to his hometown, where he works in a factory, runs a business and hosts wedding parties. He also resold some purchases online. He managed to reduce his debt by two-thirds.

Economists say they do not expect China’s repayment on online loans to severely dampen total consumer spending, given its importance to the economy.

“Consumption is likely to suffer if the channels for online lending are tightened and if Beijing gives priority to limiting short-term financial risks,” said Aidan Yao, senior emerging Asia economist at AXA Investment Managers. However, he said that Beijing wanted to increase economic growth, and that it therefore did not go so far as to severely limit consumption.

Katie Chen, a director of Fitch that covers non-financial financial institutions in China, said regulators do not want to eliminate the entire online lending industry: ‘They would rather ensure that online lenders do not take excessive risks that could threaten the stability of financial operations. . system. ”

—Serena Ng contributed to this article.

Write to Xie Yu by [email protected]