Chinese Millennials Learning the Downside to Easy Credit

Shanghai Daily has a good story out today on the impact of rising consumer debt in China. With the adoption of a more automated credit scoring based lending system, Chinese lenders are exploding.

“In November, Ping An Puhui attracted more than 500,000 new customers, taking its loan portfolio close to 25 billion yuan. About 70 percent of that debt came in unsecured loans, its main business line.

The business model changed after the company shifted its traditional system to a data-driven one , with no more use of its paper-based approach of assessing customer creditworthiness three years ago, Cho said.

The volume of new customers and new business makes Ping An Puhui the biggest player in the consumer finance market in China.

The strategy of collecting information “of clients but not from clients” relies on third-party data from administrative and legal sources.

Data analysis of “customer clusters” has led the company to expand its lending targets to those without any credit record or even those without steady incomes. That expands the potential scale of customers far beyond the central bank’s credit pool of around 361 million.

“At a conservative estimate, China’s consumer-credit market will swell to 52 trillion yuan by 2020, with the participation of non-bank financial institutions rising to nearly 20 percent from nearly 5 percent now,” Cho said.”

An interesting point made in the article is “Chinese millennials don’t have that thrifty streak that led their parents and grandparents to be called a nation of savers. Instead, they want to shop, shop, shop, and it’s causing a borrowing binge in consumer credit.”

I suppose we will see a new debt relief industry start to grow in China in a few years once these eager consumers get loaded up.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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