Chinese online loan army flees to Beijing

Traders work under screens displaying the PPDai group’s signage on the floor of the New York Stock Exchange on November 10.


Bloomberg News

What could go wrong with betting on FinTech companies that cater to China’s increasingly affluent consumers? A lot, it turns out.

The biggest risk comes from Beijing. China’s central bank issued a notice on Tuesday evening asking provincial governments to stop authorizing any new online micro-lenders. After that, shares of New York-listed peer-to-peer consumer lender PPDai fell 14%, while online lending supermarket Jianpu Technology fell 11%.

The drop in stock prices suggests that investors fear Beijing will tighten the screws on online lending further. It is a sensible conclusion to draw. Chinese regulators appear to view the sector as the Wild West of the country’s financial system. While online consumer loans are still relatively small, accounting for just 1% of China’s financial system, they are growing rapidly, reaching $ 156 billion last year from just $ 3 billion in 2013, according to Goldman. Sachs. And there have been controversies before, including a Ponzi scheme involving more than 50 billion yuan ($ 7.54 billion) discovered last year at online lender Ezubo, after which Beijing imposed credit limits. peer-to-peer loans.

The regulatory crackdown comes as foreign investors have started to invest money in the sector. Four Chinese fintech companies have raised more than $ 2 billion through initial public offerings over the past month. They are now all underwater, with PPDai, Jianpu, and payday lender Qudian all around 20% below their IPO prices. Hong Kong-listed online car loan provider Yixin has already fallen 4% since its IPO last week.

Stricter regulations could hurt these businesses even more. Qudian, for example, said that 80% of its total income last year came from loans with annualized funding service fees of more than 36%. Chinese regulators have said loans with such a high interest rate will not be enforceable by contract; Qudian said in April that it adjusted its activities accordingly.

Investors looking for higher returns have provided capital to P2P lenders – stricter rules could dry up this source of funds. Requiring lenders to look more closely at their borrowers could also hamper their growth.

Online lending may still have a future in China, with household borrowing increasing in an already tech-savvy market. But investors supporting this trend should prepare for further battles with Beijing as the industry takes hold.

Write to Jacky Wong at

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David A. Albanese