The blood spilled on Singles Day (aka Double 11) by “hand-choppers”—Chinese slang for shopaholics—has long dried. But for many happy shoppers, especially millennials, now is the time to calculate their debts. The record-breaking figures from the top festival of consumerism owe much to the rise of easy consumer credit offered by China’s burgeoning fintech industry, including microfinancing and P2P lending companies such as PPDai, Qudian, and JD’s Baitiao.
One of most notable online lending players aptly named Huabei (花呗, Just Spend) comes from the company that invented Singles Day—Alibaba. The clever tactic helps Alibaba, or the Alipay platform to be more precise, finance the spending spree on its own e-commerce platform.
To help them give away money to uncle Jack Ma, as hand-choppers have joked, this year Huabei has raised its credit limit to almost 80 percent during the promotion activities before Singles Day, allowing users to spend an extra RMB 2200 on average. The service also made a cringe-worthy move that made many reevaluate their friend’s list: it introduced a function through which users can solicit their Alipay friends for contributions to help repay their shopping debt.
Huabei is the credit card of millennials, it targets the young and the unbanked. According to a report published recently, 86% of Huabei users belong to the generations born after the 80s and 90s (in Chinese). The fact that the 60% of them never owned a credit card is a good illustrator why online lending has experienced such a meteoric rise in China. The prevalence of personal credit in China is far lower than in Western countries due to the underdeveloped banking system and lack of credit history.
Fintech has changed that. Like other microlenders, Huabei is not just about online shopping. The service is working with China’s railway system, ride-hailing app Didi, O2O platform Meituan, and more. It even provides loans for plastic surgeries. And despite the negative perceptions of the millennial generation in China, the repayment rate among post 90s users is more than 99%. Most of that money is spent on online shopping, prepaid cards, convenience stores, restaurant consumption and bike rentals with the average amount around RMB 30.
Singles’ Day is where things get extreme with credit and discount offers exploding in expectation for the event. According to Huabei data, 38% of users choose to repay their debt in 12 monthly installments (in Chinese). In other words, hand-choppers pay for their Double 11 sins until the next shopping bonanza. This shows how microlending companies boost the trend that differentiates China’s urban youngsters from the traditionally frugal older generations grown through hardships—living in the now and pursuing their lifestyle in the consumerist sense.
But the fintech bubble may be about to burst. On Tuesday, China suspended regulatory approval for new internet microloan companies to enter the space sending Qudian’s and PPDai’s stocks tumbling. The fact that Chinese consumers are increasingly turning to microlenders for even minor purchases has caught attention from regulators. Huabei, for instance, has started to hawk loans to patients unable to pay for medical expenses under the pretext of speeding up the hospital registration process.
A bigger offender is Qudian which recently went through a record-breaking IPO. The microlending firm is facing outrage over exorbitant rates, porn for payment, financial scams and since recently data leaks. Scammers have also tricked Huabei users into sending them money which in the long term may affect not just Sesame Credit, the social credit score devised by Alibaba, but also their chances of getting more important loans in traditional banks.
Calming down the online microlending market, however, is unlikely to subdue hand-choppers’ thirst for credit nor is that the goal. As China’s GDP growth declines, the government is shifting the economy from manufacturing-oriented to consumption-led. By 2020, China’s middle-class consumers will rise to almost 400 million, according to Mckinsey’s research, most of them pursuing a comfortable lifestyle. Many are wondering what will happen to the ecosystem when 1.3 billion people decide to go on a shopping spree. But in the end, it’s the numbers that count, and as some economists have pointed out, GDP is not a measure of wellbeing—it’s fixated on “more,” not “better.”