Upgraded consumption has made consumer credit services thrive, and vice versa. Photo: FILE

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In recent years, the generations born in the 1980s and the 1990s have fueled China’s consumer credit services due to their shift in payment habits and increasing demand for consumption. “I’m a fan of Japanese automation. I became interested in Japanese language, but I don’t have the spare money to pay for Japanese lessons in one lump sum,” said Liu Minglu, a 25-year-old executive assistant from a start-up in Tianjin, noting that “I took a Jingdong loan that is interest-free in six installments, so I only need to pay 510 yuan each month. It’s such a bargain to spend future money on what we want now.”

The China Banking and Insurance Regulatory Commission recently called for consumer credit services to be pushed forward and for the customizing of financial products to serve multiple consumption patterns. Innovative financial services can meet customers’ demands for tourism, education, culture and healthcare.

The proposal for increased consumer credit services sends a signal that deserves greater attention. Expanding domestic demand prioritizes the economic efforts in the second half of this year, as there is a decline in consumption growth. The finance sector should be empowered to get customers to purchase more, said Dong Ximiao, a senior research fellow of the Chongyang Institute for Financial Studies at Renmin University of China.

Upgraded consumption has made consumer credit services thrive, and vice versa, said Xue Hongyan, director of the Research Center for Internet Finance at Suning Institute of Finance, adding that fintech, in the past few years, has been working on how to improve customer experience and lower the threshold for the use of consumer credit services, thus motivating the consumption upgrade in various fields.

Service providers in the consumer credit market vary enormously on risk control. Therefore, the emerging sector is riddled with problems, such as excessive borrowing and unclear credit flows.
“Currently, the residential housing leverage ratio is high, so governments need to track the climbing leverage ratio caused by excessive borrowing. Earlier, illegal inflow of individual credit loans to the property market has triggered China’s stricter supervision,” said He Fei, a senior research fellow at the Financial Institute of the Bank of Communications. A variety of consumer credit products emerged quickly, giving people the false impression that individual credit services have achieved explosive growth. In fact, consumer credit loans account for only a small proportion of the overall scale of individual loans, still requiring guidance to straighten out its future development.

In addition, personal information disclosure has worried customers. Many of them claimed, “I didn’t borrow any loans, but I received text messages for payment arrears,” or, “Credit lenders have my personal information even though I haven’t applied for services from them.” Impersonators may register credit loan platforms with other consumers’ contact information, mailing addresses and identification cards. Any overdue fees from impersonators’ property purchases, car purchases, all the way to job searches, could be pushed off onto victims.

Xue held that consumer credit services should develop incrementally, because it is a sector interconnected with multiple factors, such as consumer attitudes, expected income increases, the credit environment, urbanization and population structure. Organizations involved must have patience and continuity to nurture the market. In the past few short years, many financial organizations have pursued quick money and market expansion following capital requirements and whirlwind economics, thus encouraging crowded and problematic segmented markets. Now the priority is to create a favorable market environment for selected consumption fields whose prosperity requires long-term preparation and progressive design.

The issue of illegal loan inflows should be tackled, said He. While encouraging credit services for goods purchases, organizations should shore up the supervision on cash loans and prevent such loans from flowing into the real estate or stock markets. If it is necessary, borrowers need to show proof of what they shall use the loan money for. In terms of loan fraud, we need to advance the procedure to invite more credit service providers to join the credit reference system initiated by the People’s Bank of China. Also, expanded efforts are needed to disclose information about credit fraud and debt evasion. Increased penalties would help stave off illegal behaviors. In addition, an information sharing system should be set up across sectors, so that untrustworthy borrowers would find it difficult to get loans from several platforms at one time.

 

This article was translated from People’s Daily.

(edited by MA YUHONG)