“In China, the rapid recovery in demand and the decline in risk are somewhat overshadowed by regulators’ attempts to suppress the role of large technology and other non-banking companies in favor of banks. They achieve this by limiting their access to refinancing, which temporarily affects us as well, ”says Milan Tománek, Home Credit Group’s Director of Communications.
The most visible example of the Chinese authorities’ tighter action against lenders is the canceled issue of shares of the financial colossus Ant Group, owned by billionaire and Alibaba online store Jack Ma, at the end of last year.
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Subsequently, however, the Chinese authorities also focused on other technology companies, including the colossus Tencent. The loudest signal came recently from President Xi Jinping, who stressed the need to better regulate large technology companies.
Since the beginning of the year, Chinese financial market authorities have introduced a number of measures to tighten lending. It will evaluate companies according to a new scoring, which reflects the risk, capital or information technology of individual companies. It then banned retail lenders from lending to university students. “There is more pressure on regulation in China, which can reduce the business,” adds Tomáš Pfeiler, portfolio manager at the brokerage firm Cyrrus.
China’s change in consumption orientation, which was supposed to become the engine of the economy, is also evident in last year’s results. While the Chinese economy was the only major world economy to grow by 2.3 percent last year, consumption fell by 3.9 percent compared to 2019. The driving force of the Chinese economy was construction and investment.
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However, stricter regulation does not have to be just bad news for Home Credit. It mainly concerns large “platforms”, as the Chinese leadership calls technology giants. “On the other hand, it is to some extent positive for us that the influence of large internet players is limited,” Tománek points out, adding that the company’s strategy is to prioritize the quality of loans over their quantity. “We target more creditworthy clients, offer smaller loans for a shorter period of time and strive to obtain the most frequent interaction with clients,” says Tománek.
In addition, the Chinese authorities initially focused mainly on so-called peer-to-peer lenders, where loans are provided directly by people or companies to each other. These loans were used by companies that did not have access to bank financing. “Regulating these platforms may mean tightening monetary conditions and many companies may struggle with funding,” says Pfeiler.
Now, however, regulation also focuses on feints and real estate financing. However, tighter regulation can adversely affect the whole economy. “China has experienced incredible economic growth by allowing market forces to play a greater role and by changing the incentives that drive the behavior of entrepreneurs and individuals,” Diana Choyleva, chief economist at Enodo Economics in London, told the Financial Times. According to her, top-down party control will be “a brake, not an engine of growth”.
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