MICROCAPITAL BRIEF: As China Tightens Online Lending Market, Ant Financial Pauses $37b in Annual Sales of Asset-backed Securities; Nexgo, Zhejiang Busen Garments Cancel Plans to Offer Loans

Amid criticism of China’s online lending industry as having “sometimes high interest rates and underhand lending practices,” the nation’s government has taken steps to slow the sector. It has urged local regulators to cease granting approvals to new microloan firms, citing the risk of over-indebtedness. It reportedly has also stopped approving the sales of asset-backed securities by Zhejiang Ant Small & Micro Financial Services Group (Ant Financial), which is controlled by Alibaba co-founder Jack Ma. Anonymous sources indicate that such sales could continue for loans for purchases through websites such as Alibaba, an online retailer, but not for cash loans.

During 2017, Ant Financial sold asset-backed securities valued at CNY 238 billion (USD 37 billion). Although financial data on the firm is unavailable, its Alipay unit reports 520 million users as of 2018. For the quarter ending September 2017, the Alibaba Group earned net income of RMB 17 billion (USD 2.6 billion) on revenue of RMB 55 billion (USD 8.3 billion).

As the regulatory environment has changed in China, multiple firms have cancelled plans to start offering loans, such as Shenzhen Xinguodu Technology Company (Nexgo), a manufacturer of point-of-sale (POS) terminals, and Zhejiang Busen Garments Company, a menswear firm. Both firms are traded on the Shenzhen Stock Exchange.

By Ryan Gauthier, Research Associate

Sources and Additional Resources

Bloomberg article:
https://www.bloomberg.com/news/articles/2018-01-26/biggest-sell-signal-for-stocks-since-2013-hit-with-record-inflow

Reuters article:
https://www.reuters.com/article/us-china-loan/chinese-firms-scrap-plans-for-micro-loan-business-amid-crackdown-on-blind-borrowing-idUSKBN1DM12J

PYMNTS.com article: