Chinese regulators attempting to rein in Ant Group Co. and a swelling online-lending industry have a target in their sights: the excessive, debt-fueled lifestyles of the country’s youth.
Leading up to last year’s coronavirus pandemic, a new generation of tech-savvy and free-spending citizens helped power rising consumption, a growing driver of China’s economy.
Many used short-term loans to pay for expenses such as prestige cosmetics, electronic gadgets and costly restaurant meals. They found credit easy to obtain, thanks to Ant and other Chinese financial-technology companies that provided unsecured loans to millions of people who didn’t have bank-issued credit cards. In 2019, online loans accounted for as much as half of short-term consumer loans in China, according to estimates from Fitch Ratings.
Now, new financial regulations are forcing lenders to reassess their business strategies and have sparked a reckoning about the American-style borrowing and spending habits of China’s younger population. Starting in 2022, Ant and its peers will have to fund at least 30% of the loans they make together with banks, a rule designed to make online lenders bear more risk.
In recent weeks, a grass-roots campaign on Chinese social media dubbed “coming ashore”—a metaphor for becoming debt-free—has been gathering steam, with people sharing their experiences and regrets about overspending and borrowing.
On microblogging site Weibo and Xiaohongshu, another popular social-media platform, people have posted photos of shredded credit cards and screenshots that show them closing their online credit facilities. Some described clawing their way out of debt by reducing daily expenses and avoiding unnecessary purchases.
“A top-down crackdown on overspending has prompted a national soul-searching,” said Daniel Zhi, a partner at KPMG China who leads its financial-strategy consulting service, adding that the regulatory action has “put a lid on the whole online-lending industry.”
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‘A top-down crackdown on overspending has prompted a national soul-searching.’
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In November, a day before Ant’s blockbuster initial public offering was pulled, a column by an official from a division of China’s banking and insurance regulator said that while consumption is a pillar of China’s economy, financial institutions and fintech companies need to act responsibly to protect the rights and interests of their consumers.
The official, Guo Wuping, said fintech companies allowed people to borrow excessively, causing “some low-income people and young people to fall into debt traps.” He described Ant’s Huabei virtual-credit-line service as inclusive but not favorable, as some fees associated with it were higher than what banks charge on credit cards. Ant declined to comment.
Other Chinese state-media outlets have also criticized fintech platforms for encouraging young people to overspend. Last month, a report from China’s central bank said the country is trying to increase domestic consumption without relying on consumer debt. Default rates for short-term loans have been low, but officials worry about risks that could arise if excessive borrowing isn’t curtailed.
Ant, which is controlled by billionaire
Jack Ma,
is China’s largest provider of online short-term consumer loans. The owner of the popular payments app Alipay had the equivalent of $267 billion in outstanding consumer loans as of June, making up nearly a fifth of China’s total short-term household debt.
Ant’s personal-lending services Huabei and Jiebei—meaning “just spend” and “just borrow”—were used by about half a billion Chinese citizens in the 12 months to June alone. Most of the funding has been supplied by around 100 banks and other commercial lenders Ant partners with.
Mona Wang, a 27-year-old who works in the financial sector in the central city of Xi’an, said that at the end of last year she owed the equivalent of more than $15,000 to various online lenders and banks, including Ant’s Huabei and credit-card issuers. The debt, which totaled roughly 15 times her usual monthly income, was largely the result of her spending on
shoes and other branded items, she said.
A few months ago, during
’s annual Singles Day online shopping festival, Ms. Wang said, she used Huabei to splurge on items including bottles of fiery Moutai liquor,
yoga clothes, a Dyson hair dryer and a vacuum cleaner. “They just looked like bargains that you should not miss,” she said.
Ms. Wang said she later realized she had overstretched her finances and has had some sleepless nights. Fortunately, she said, a bonus she received in February helped her repay half the debt, and she is now trying to carefully manage her expenses to pay down the rest.
Ant and its peers used to run advertisements that promoted liberal spending behavior. One promoting Huabei, which ran last October, featured a 37-year-old construction worker taking his daughter to a fancy restaurant for her birthday. Another showed a delivery man who used Huabei to buy a saxophone with the words, “Don’t scrimp on the things you love.”
Ant declined to comment on the advertisements. Since the IPO was pulled, the company and its top officials have said that they are rectifying their business and that Ant has made changes to how it lends. In December the company said it had reduced credit limits for some younger borrowers to promote more rational spending habits, without providing specifics.
Chinese state-media outlets have criticized fintech platforms for encouraging young people to overspend.
Photo:
thomas peter/Reuters
On Friday, Ant laid out a framework for how it would self-regulate its various digital-finance businesses. As part of this, the company said it would lend responsibly and wouldn’t extend loans to young and low-income borrowers beyond sums needed to cover their basic living expenses.
Yuzhang Wang, 26, said his Huabei credit limit was recently cut to the equivalent of about $2,500 from more than $4,600. Mr. Wang lost his job last year at a vocational-training institute in Beijing and fell behind on more than $30,000 in debt that he had racked up, including from Huabei, on outlays such as Gucci and Versace accessories, iPhones, and costly dinners. He said debt collectors had called him and his family, threatening lawsuits.
Mr. Wang moved back to his hometown, where he juggles working at a factory, driving for a ride-hailing company and hosting wedding parties. He has also resold some purchases online. He has managed to slash his debt by two-thirds.
Economists say they don’t expect China’s online-lending pullback to dampen overall consumer spending severely, given its importance to the economy.
“Consumption is likely to take a hit if online-lending channels are tightened and if Beijing prioritizes reining in financial risks for the short term,” said
Aidan Yao,
senior emerging-Asia economist at AXA Investment Managers. However, he said that Beijing wants to keep economic growth up and so wouldn’t go so far as to severely limit consumption.
Katie Chen, a Fitch director covering nonbank financial institutions in China, said regulators wouldn’t want to eliminate the entire online-lending industry: “Rather, they want to ensure online lenders do not take excessive risk that could threaten the stability of the financial system.”
—Serena Ng contributed to this article.
Write to Xie Yu at Yu.Xie@wsj.com
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