The repression of loans in China: luxury suffer?

In fact, a downturn in business is likely, he says.

Fitch Ratings also expects the tougher rules to restrict spending in the short term. Likewise, Wright of China Markets Research rates the possibility of downward pressure on consumer spending as “very likely.” He watches closely. “There was a fairly significant slowdown in online spending levels reported in December when individual credit lines on some of the fintech platforms were cut,” he says, adding that this has stabilized since then. “We will be able to see the general trends more clearly over the next few months.”

In response to China’s tightened online consumer lending rules, first announced as a draft last year, some departments, including Ant Group Huabei, have already lower borrowing limits for individuals. According to Wright, the initial cuts to some of the credit lines would have reached 80%. Last week, Ant Group too published “rules of self-discipline” for a healthier development of the fintech industry, including the non-granting of loans to minors.

Under the new regulations implemented from January 2022, platforms will be required to provide at least 30% of the funding when issuing a joint loan with a bank. Currently, online platforms provide less than 5% of funding, with the partner bank assuming most of the lending risk, says Maggie Hu, assistant professor of finance and real estate at the Chinese University of Hong Kong Business School.

For credit screening and assessment, banks are relying on online platforms, which will now be encouraged to perform more in-depth borrower screening.

Beyond the short term, all of this can work for the best. “We expect the cash flow, earnings and valuations of these platforms to decline substantially in the short to medium term,” says Hu. “In the short term, the growth of loans and consumer spending can be hampered to some extent. However, a steady growth rate with better quality with prudent regulation will be achieved for the market in the medium to long term. “

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