China’s consumer debt crackdown hits cash loan providers

China’s boom in micro-lending comes as lenders seek to cash in on rising incomes in a country where credit card penetration remains at about one-third of the population. (Reuters)
Updated 02 December 2017
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China’s consumer debt crackdown hits cash loan providers

BEIJING: 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 such as Qudian and PPDAI Group, the Chinese micro-lenders raised $1.2 billion (SR4.5 billion) with splashy US 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.”
On Friday, China’s financial regulators introduced new measures aimed at restricting the industry, which is estimated to be worth 1 trillion yuan (SR570 billion).
China has long been known as a nation of savers, but consumers are rapidly embracing debt from non-bank online platforms. The number borrowers taking out cash loans from the micro-lenders is growing at an unprecedented rate, according to the lending 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.
The People’s Bank of China and the China Banking Regulatory Commission did not respond to faxed requests for comment.
Angel Xiao, 23, who lives in the southern boomtown of Shenzhen and does not own a credit card, said she borrowed 10,000 yuan last year from two online lenders, PPDAI and Flower Wallet, to attend a jewelry design class.
But after she lost her job as a tutor, she found herself unable to pay back the initial loans. With interest piling up, Xiao eventually took out a series of new loans, with an average maturity of 14 days, from more than 30 other lenders.
“I didn’t have money to repay loans coming due,” she said in an exchange on WeChat, a messaging service. “So I took out more loans. Every time when I didn’t have money, I used new loans to repay old loans. That’s how I got trapped deeper and deeper.”
China Rapid Finance, an online micro-lender that raised $60 million in an April listing on the New York Stock Exchange, defended its cash loan business.
In a statement, it said that its target customers have little or no history with China’s credit bureau, but that they “are prime and near-prime borrowers,” and that it only grants new loans to borrowers who have repaid in full all prior loans granted by the company. It also said the rates it charges are affordable.
In its third-quarter earnings report, China Rapid Finance’s repeat borrower rate was 75 percent.
Online consumer lending in China, of which cash loans are a significant portion, dwarfs similar activity in the rest of the world combined, accounting for over 85 percent of all such activity globally last year, according to a recent report by the Cambridge Center for Alternative Finance.
The boom in micro-lending comes as lenders seek to cash in on rising incomes in a country where credit card penetration remains at about one-third of the population, according to data from the central bank, which says about half a billion consumers don’t have a credit score.
And the online cash loan sector is projected to reach 2.3 trillion yuan by 2020, according to the research firm iResearch.
China Rapid Finance in November reported a 514 percent year-on-year increase in short-term consumer lending in the third quarter to $908 million. PPDAI’S “handy cash loans,” with maturities of one to six weeks, increased more than 10 fold year-on-year to 1.98 billion yuan in the second quarter, it said. Qudian recorded a 695 percent increase in net income for the first six months this year, it said in its listing prospectus.
Qudian and PPDAI declined to comment.


MODON to establish integrated pharmaceutical complex

Updated 23 May 2019
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MODON to establish integrated pharmaceutical complex

JEDDAH: The Saudi Authority for Industrial Cities and Technology Zones (MODON) has signed an industrial land lease covering more than 62 thousand square meters in the city of Madinah, to build a pharmaceutical complex including research and development centers, with a total investment reaching SR 570 million.

MODON’s Director General Khalid bin Mohammed Al-Salem said that the signing of the contract was the result of joint work with the National Program for the Development of Industrial Compounds. MODON provided various facilities and incentives to support the investment, with the project set to provide nearly 1000 jobs for both genders with a localization rate exceeding 50 percent.

He added that the project is in line with the goals of the National Industrial and Logistics Development Program (NIDLP) to localize the most advanced industries in the world, in accordance with Saudi Vision 2030 for economic diversification.

Since its inception in 2001, MODON has been developing integrated industrial lands in accordance with the highest international standards. It currently oversees 35 industrial cities under development in various regions of the Kingdom, in addition to supervising private industrial parks and cities. The developed industrial lands exceeded until today 198.8 million square meters, while the existing industrial cities include 3,474 productive factories.