China Expands Pilot Scheme for Consumer Finance Companies Nationwide

The State Council decided at a recent executive meeting to liberalise the consumer finance industry by expanding the pilot scheme for consumer finance companies from 16 cities to all parts of the country. The administrative power to approve consumer finance companies will be delegated to the provincial governments. Qualified private capital, domestic and foreign banking institutions and Internet+ companies are encouraged to set up consumer finance companies and offer small unsecured loans without collateral in well-regulated operations at their own risks. They will compete with commercial banks on a different level and work together to make consumption play a better role in stimulating economic growth.

Consumer finance companies have seen rapid growth and reached maturity in the West, but are still on the threshold in China. There is ample room for development. The business of consumer finance companies mainly includes loans for personal durable consumer goods and personal consumption loans for general purposes. From the angle of sales revenue and main business, retailing and home appliance heavyweights will stand to benefit from this policy.

With the approval of the State Council, the China Banking Regulatory Commission (CBRC) released the Administrative Measures on the Pilot Programme of Consumer Finance Companies in 2009. Beijing, Tianjin, Shanghai and Chengdu were each allowed to set up one pilot consumer finance company. In September 2013, the CBRC expanded the pilot scheme to Shenyang, Nanjing and other cities.

Consumer credit is expected to increase at a compound growth rate of over 20% from 2014 to over Rmb27 trillion by 2017. Up to 2014, outstanding personal consumer loans in China stood at about Rmb7.7 trillion. The figure is expected to increase to Rmb17.5 trillion by 2018.

Under China's economic transformation and “new normal”, consumption will be the main engine for future economic growth. With its huge population and strong spending power, there is great potential to be tapped in this connection. The government's policies of economic stimulus and support have also provided a good environment for the development of consumer finance, which will be the next blue ocean for Internet finance.

The recent State Council executive meeting also pointed out that promoting the healthy and rapid development of cross-border e-commerce and using the "Internet plus foreign trade" approach to improve the import and export mix will help expand consumption, promote the development and upgrade of China's open economy, and foster new growth areas.

The rapid development of cross-border e-commerce in the next few years will generate great opportunities for companies engaged in the building and operation of e-commerce platforms. Cross-border e-commerce will keep growing at a compound rate of 30% annually over the next two to three years and will account for about 20% of the total value of imports and exports by 2017. Export e-commerce will remain dominant, accounting for over 80%. The value of export e-commerce will continue its growth at 20%-25% annually to reach Rmb6.64 trillion by 2017.