China’s debt crackdown hits cash loan providers

Beijing: Executives from Chinese companies specialising in offering consumers small, easy to-get loans became something of a fixture on Wall Street this year.

Led by companies such as Qudian and PPDAI Group, the Chinese micro-lenders raised $1.2 billion with splashy US listings, cashing in on a boom in borrowing by consumers in China with little access to traditional banks.

However, the fortunes – and share prices – of the micro-lenders have slumped in the past week as Beijing clamped down on risks in the financial system, zeroing in on the fast-growing and loosely-regulated market for unsecured “cash loans”.

On Friday, China’s financial regulators introduced new measures aimed at restricting the industry, which is estimated to be worth 1 trillion yuan ($151.5 billion). China has long been known as a nation of savers, but consumers are rapidly embracing debt from non-bank online platforms. The number borrowers taking out cash loans from the micro-lenders is growing at an unprecedented rate, according to the lending companies and the government.

For borrowers, the easy loans can be a risky proposition – especially if they fall behind on payments.