Chinese Regulators Squeeze Online Lending, Debt-Powered Spending

The growth of China’s luxury market in 2020 has been driven in part by the rapid adoption of e-commerce following last year’s Covid-19 outbreak. BoF.

Beginning next year, fintech players like Alibaba affiliate Ant Group will be required under new regulations to fund at least 30 percent of the loans they make with banks — a decision that could temper spending by China’s younger shoppers, The Wall Street Journal reports.

In recent years, online loans have helped drive consumption among a demographic keen to own the latest luxury goods but unable to afford them. A 2019 HSBC survey revealed that the debt-to-income ratio of post-’90s Chinese reached a whopping 1,850 percent; for comparison, Canada’s ratio for millennials is estimated at 216 percent.

From the highest echelons of government to netizens on social media, debt and overspending have become hot topics. At the same time, there have been shifts among shoppers keen to embrace more frugal, minimalist lifestyles, as a small but growing movement against heavy spending coincides with calls for sustainability and conscious consumption.

Last week, Ant Group said that as part of its self-regulation efforts, its credit payment company Huabei and short-term consumer loan provider Jiebei would lend responsibly and refuse loans to young or low-income borrowers beyond what is needed to cover basic living expenses. But given Beijing’s interests in sustaining China’s economic momentum, the extent that regulations will dent consumption in the long-term remain uncertain.

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