China’s new credit rating agency

Darren Sinden

The potential for growth in consumer credit and lending in China is significant and the market is forecast to double to 24 trillion Yuan by 2025

China Investment

At the same time that China is cracking down on the power and reach of its tech giants, the Chinese state is embracing one of the key tenants of consumerism, that of the credit rating.

The Peoples Bank of China (PBOC), the country’s central bank has issued the second personal credit rating licence to a joint venture between a state-owned enterprise (SOE) and two technology firms.

The tech partners to the venture are JD digits, the fintech division of JD.com and mobile phone manufacturer Xiaomi.

The techs firms will own 25 and 17.5% respectively of the new business which is called Pudao Credit which will now compete alongside Baihang Credit which received the inaugural credit rating licence back in 2018.

Baihang is owned by a consortium of fintech tech companies including Ant Group and Tencent which are under scrutiny for potential anti-trust violations.

One of the business areas that the authorities in Beijing are interested in is consumer credit and online line lending in which credit ratings can play an integral part.

The PBOC moved to restrict online lending last month with the introduction of tighter capital adequacy and lending ratios covering loans to individuals and small to medium-sized business.

The potential for growth in consumer credit and lending in China is significant and the market is forecast to double to 24 trillion Yuan by 2025 according to research from banking consultancy Oliver Wyman. Ant group has approximately 16% of the existing Chinese consumer credit while Tencent’s market share is around 5.0%.

Baihang Credit has already established ratings for 85 million consumers but that is just a fraction of the 700 million-plus people in the country who fit the middle-class demographic criteria set by Pew Research and others.

Many of the expanded middle classes are in lower to middle-income bands that the world bank classifies as earning between US$10 and 20 per day. These consumers are likely to be aspirational and willing to borrow to meet their goals.

Under these definitions, the middle-class cohort in China has grown from just 39.10 million people in the year 2000 to exceed 700 million by 2018 and they now represent 50% of the countries population.

It’s not only fintech companies that are keen to exploit the potential for lending those this newly enfranchised group Chines banks are also keen to get in on the act in an attempt to diversify their income streams and move away from the bad debt-laden lending of the past.

The timing of the announcement of a second personal credit rating licence is significant as is the involvement of the Chinese state in the business albeit nominally at arm’s length.

The partnership between the state, JD.com and Xiaomi could be interpreted as sensing a message as well one that says there are opportunities for the private sector in China’s massive markets but they are for those who play by the rules (both written and unwritten).

Subtexts that won’t be lost on the managements at Alibaba and Ant group or on their founder Jack Ma who of course are all currently receiving a different kind of attention from the Chinese state.

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