◼ ECONOMICS Bloomberg Businessweek August5, 2019
31AtonepointinJunelastyear,ZengJinpengwas
morethan10,000yuan ($1,500) in debt to a smart-
phone app.
The 23-year-old Shanghai resident pays for
his online purchases of food, clothes, and travel
withHuabei,a virtualcreditcardthat’spartof
AlibabaGroupHoldingLtd.’ssprawlingstableof
e-commerce properties. His spending often used
to exceed his only source of income: the 8,000-
yuan monthly allowance from his parents. He
tried to repay the debt in installments, even bor-
rowing from Jiebei, another Alibaba-owned credit
service, but eventually his mother and father had
tobailhimout.
Zeng’sstoryistypicalofmembersofChina’s
GenerationZ. These fledgling consumers, born
from the mid-1990s to the early 2000s, have little
income and therefore virtually no credit history.
Yet they have easy access to credit from an assort-
ment of banks, fintech startups, and peer-to-peer
lenders, plus other channels that are unregulated.
Formalhouseholdborrowingroseto54%ofgross
domesticproductinthefirstquarter,upmorethan
4 percentage points in a year. China’s ratio is still
lower than that of the U.S. (66%), Hong Kong (72%),
orSouthKorea(100%),accordingtoS&PGlobal.
Nevertheless,therapidincreaseis worryingregu-
latorsandanalysts.Inmid-July,FitchRatingsnoted
thatperiods of debt-fueled consumption “can often
be followed by sharp market corrections.”
The spending habits of the young in particular
are causing concern. Late last year, former People’s
Bank of China Governor Zhou Xiaochuan said that in
some cases the younger generation is being induced
to overconsume via credit secured through technol-
ogy. According to a note the Shanghai University
of Finance and Economics released in July, there
couldbeconsequencesforthebroadereconomyif
debtpilesuptothepointwhereit “startstoerode
householdliquidityandcrowdoutdemand,” mean-
ing repayments take up so much disposable income
that there’s little left for new purchases.
China is in the midst of a long-term shift from an
export- and investment-led growth model toward
something more like a modern consumer economy.
A consumer debt crisis would throw that strategy
off track at a time when production for export is
constrained by the trade war.
THEBOTTOMLINE Unsecuredconsumercredithasbeen
growing 20% per year in China, driven in part by young people’s
predilection for shopping online.1/2007 6/20199t630● China household
short-term consumption
loans, in yuanUnsecured consumer lending has expanded 20%
a year in China since 2008, and intensifying com-
petition is pushing financial institutions to chase
less creditworthy borrowers such as Zeng. Huabei
chargeshim0.05%perday,foranannualizedrate
of18.25%.Theserviceoffersrevolvinglinesofcredit
from 500 to50,000yuan. Balances can be repaid
in monthly installments. Alibaba’s rivals, including
JD.com Inc., have similar products.
Unlike credit card debt, loans offered on these
platforms are mostly uncounted in official data.
ConsultingfirmIResearchprojectstheamountof
consumerfinanceavailablethroughtheinternetwill
morethandouble,to 19 trillionyuan,by2021,from
7.8trillion yuan last year.
Regulators last year launched a crackdown on
peer-to-peer lending, which besides being a source
of easy credit had also become a popular invest-
ment vehicle. The sector has shrunk to less than
halfitspeaksizeasa resultofforcedshutdowns.
Officialdatashowedthatalmost70%ofChina’s
50 millionP2Pinvestorswereyoungerthan40.
AsforZeng,he’stryingtobea littlemorefrugal,
even though he now earns a small income from
an internship in Shanghai. “I deliberately set the
credit limit at a lower level,” he says, “so that hope-
fully I can better match my income with spending.”
�Bloomberg NewsChina’s GenerationZ Is Hooked on Credit
● Banks, fintechs, and peer-to-peer lenders are aggressively courting cash-strapped young consumers