A new assault by Chinese authorities on the nation’s cash microlenders threatens to stymie any new listings in New York, as regulators in Beijing escalate their campaign to reduce risks in China’s US$40 trillion financial-services sector.
China plans to purge the nation’s 157 online microlenders, leaving only large state-owned companies and the biggest Internet firms intact with licenses, said the International Financial News, which is managed by the People’s Daily.
Few of the existing lenders will survive, the newspaper said.
A comprehensive cleansing of the industry, which offers almost immediate unsecured loans over the Internet, often at high interest rates, would escalate earlier moves to crack down on the sector and its estimated US$152 billion in loans.
News that China has halted further approvals for online microlenders has already pummeled the New York shares of firms such as Qudian Inc (趣店) and PPDAI Group Inc (拍拍貸).
If existing firms were to come under scrutiny, it would be especially bad timing for Yangqianguan (洋錢罐), LexinFintech Holdings Ltd (樂信控股), Dianrong (點融) and other Chinese online lenders currently seeking or at least weighing initial public offerings (IPOs) in New York.
“It would seem to be an enormous, enormous risk to try an IPO with that hanging over your head,” said Christopher Balding, an associate professor at Peking University’s HSBC School of Business. “It would most likely put a halt to any IPO plans of these companies now.”
The International Financial News report cited an unidentified person with knowledge of recent orders from the Chinese State Council’s Financial Stability and Development Committee.
Qudian shares have fallen 33 percent since listing last month in New York. PPDAI started trading earlier this month and has tumbled 37 percent.
Putting a shorter rein on China’s microlending sector is in step with the government’s broader campaign to curb excessive leverage and preserve the nation’s financial stability.
That drive is to focus on four areas: shadow banking, asset management, financial holding companies and Internet finance, People’s Bank of China Governor Zhou Xiaochuan (周小川) said in a speech in Washington last month.
Last week alone, regulators proposed sweeping rules to curb risks in US$15 trillion of asset-management products and laid out new limits on bank shareholdings, partly aimed at better protecting domestic lenders.
It is not clear which companies might be snared by a proposed cleanup of microlenders. Moreover, some peer-to-peer lenders — platforms that directly match borrowers with willing investors — also offer short-term cash advances.
More than 60 of the so-called peer to peer (P2P) firms in China have a cash-loan business, Yingcan Group said.
The total monthly value of short-term cash lending surged to about 12 billion yuan (US$1.82 billion) last month from 789 million yuan in January last year, the research firm estimates.
The firm values total outstanding cash loans in the nation at more than 1 trillion yuan.
Xiamen plans to halt the registration of businesses that have “online lending” or “P2P” in their names or that engage in those activities, its Financial Affairs Office said in a statement on Wednesday.
The most recent clampdown has been spurred by claims that some cash microlenders, which offer short-term loans to borrowers with poor credit histories, had been charging excessive interest rates.
The industry has grown rapidly in the past year, following a crackdown last year on P2P lenders.
“The sector is absolutely ripe for some type of regulatory address because my sense is that the regulators have very little idea as to what is going on,” Balding said.
“I would expect that in typical Beijing fashion they will go in with a sledgehammer and ask questions later,” he added.
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