Chinese regulators have given smartphone maker Xiaomi the green light to set up a consumer finance company in Chongqing, a municipality in the southwest of the country, according to an announcement on Friday.
Why it matters: Xiaomi’s consumer finance unit is becoming increasingly important as it looks to compete with other large Chinese tech companies which have piled into the lucrative consumer finance sector.
- In March, Xiaomi’s micro-finance unit in Zhuhai had its business license rescinded amid a nationwide crackdown on online lending. Xiaomi also has a micro-finance subsidiary in Chongqing, but its relationship with the newly approved consumer finance company is unclear.
- Shortly before its 2018 initial public offering on the Hong Kong stock exchange, Xiaomi revealed that it planned to spin off its finance business into an independent entity. Many interpreted the move as a way for the financial arm go public.
- Consumer finance provides the company another user gateway as the growth of its smartphone business slows.
Details: The China Banking and Insurance Regulatory Commission said the new entity should be established within six months of the approval dated Jan. 10.
- The key shareholders are Chongqing Rural Commercial Bank (CRCB), and three other Chongqing-based companies. Proposed registered capital is set at RMB 1.5 billion ($218.6 million).
- Chinese media reported in November that Xiaomi would become the 28th company in the country to acquire a consumer finance license, joining Baidu, Alibaba, and many others.
- Xiaomi told Chinese media that setting up the new company will help it to gain a firmer foothold in Chongqing, and it expects to expand consumer finance across the country.
Context: Xiaomi has been plotting the move for a year.
- Xiaomi and Chongqing’s Jiangbei district government inked a cooperation agreement to set up the consumer finance company in May 2018.
- In November, CRCB obtained regulatory approval to set up the consumer finance joint venture with an investment of RMB 450 million, or a 30% stake.
- Xiaomi’s financial product portfolio includes consumer loans, supply chain finance, fintech, third-party payments, online insurance, and digital banking.
- The company is eyeing lucrative fintech markets overseas. The company acquired its digital banking license in Singapore earlier this month and was said to be in talks to expand its financial product offering in India late last year.
- Chongqing is one of China’s four municipalities along with Beijing, Shanghai, and Tianjin which are directly controlled by the central government. A commercial hub for southwest China, it is considered the regional base for Alibaba’s and Ant Financial’s operations in the region.