China cracks down on cash loan firms

Reuters BEIJING (Reuters) — Executives from Chinese companies specializing in offering consumers small, easy-to-get loans became something of a fixture on Wall Street this year.

Led by companies like Qudian Inc. and PPDAI Group Inc., the Chinese micro-lenders raised $1.2 billion with splashy U.S. listings, cashing in on a boom in borrowing by consumers in China with little access to traditional banks.

However, the fortunes — and share prices — of the micro-lenders have slumped in the past week as Beijing clamped down on risks in the financial system, zeroing in on the fast-growing and loosely-regulated market for unsecured “cash loans.”

A notice last week announcing the suspension of approvals for new micro-lenders and restrictions on business across regions highlighted the growing risks Beijing sees in the industry, estimated to be worth 1 trillion yuan ($151.5 billion), according to state media.

China has long been known as a nation of savers, but consumers are rapidly embracing debt from nonbank online platforms. And the numbers of those taking out cash loans from the lenders is growing at an unprecedented rate, according to the companies and the government.

For borrowers, the easy loans can be a risky proposition — especially if they fall behind on payments. The loans are usually in the range of 1,000 yuan; interest is typically about 36 percent annually, and penalty charges and compound interest can quickly add up, according to borrowers.

The number of repeat borrowers is rising, which could signal financial stress on borrowers, analysts say. The companies, however, say the repeat lending is just a sign of the attractiveness of their platforms. Sources close to the central bank say more unspecified measures aimed at restricting the industry are on the way.

The People’s Bank of China and the China Banking Regulatory Commission did not respond to faxed requests for comment.

Online consumer lending in China, of which cash loans are a significant portion, dwarfs similar activity in the rest of the world combined.Speech

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