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China puts the brakes on its sprawling microlending industry
A top-level Chinese government body issued an urgent notice on Tuesday evening asking provincial regulators to suspend issuing licenses to any new online microlending firms, sources who have seen the document told Yicai and Reuters. The notice also banned local authorities from approving internet micro-loan firms to conduct lending across provinces and regions.
The notice marks the harshest set of regulations over the country’s sprawling online microlending businesses, as they provide an alternative to traditional state-owned banks and offer people with cheap loans. The lucrative industry has sent a flock of major players including Qudian, PPDAI, Hexindai, and Rong360 to list on the US public markets this year. Share prices of Chinese loan lenders plunged following the Tuesday notice. Qudian, who had a splashy initial public offering about a month ago, sank as much as 20%; PPDAI also fell below its IPO price.
The clampdown, insiders suggest, is in line with the government’s intention to clean up the online microlending industry. Licenses for micro-lenders are under the control of local authorities but the advance of the internet has enabled lenders to more easily circumvent regulations and conduct lending across regions. In 2016, unsecured consumer lending via Chinese online platforms more than tripled to almost $140 billion, according to a report by the Cambridge Centre for Alternative Finance.
Beijing started a crackdown on the country’s fintech sector last year, issuing guidelines and rules following episodes of scandals and frauds. In June, Beijing banned online loans to college after a public outcry over students falling victim to aggressive debt recovery tactics—including requiring nude photos as collateral—practiced by loan sharks. Qudian, which was born out of student-based Qufenqi, is facing potential class-action lawsuits in the US after drastic tumble of its stock price.