Name
Global FinTech Guide
Country _ Name
China
SectionTitle
Loan services / factoring / loan broking / finetrading
Body
FinTechs belonging to this category act as a loan creditor (even short and very short-term loans), are broking loans or receivables or conduct factoring of loans, which were given to private or business customers. In this business area you also find “peer-to-peer” (P2P) services, in which FinTechs enable a multitude of users to give loans (and brokered by the FinTech-platform) to other users or companies.

Finetrading is hereby a financial service of FinTechs, where they buy due receivables and grant the debtor an extension of payment time. 

As an ancillary service some FinTechs offer alternative credit assessment services to check the solvency of a borrower.

Introduction

Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services

Guo Shuqing, the Chairman of CBIRC, spoke at the 2020 Singapore FinTech Festival and explained that the operating P2P online lending institutions were cleaned up from the market during the past few years. As of November 2020, the number of operating P2P platforms has decreased from 5000 to zero, which means that the P2P business has now been expelled from the Chinese market.

Notwithstanding the above, there are still licensed and specialised companies that are providing relevant services. Generally speaking, the loan-giving and brokerage businesses are carried out by microlending companies; the factoring business is carried out by commercial factoring companies; the finetrading business is carried out by the financial asset management companies. 

Legal affairs  

Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above

Firstly, engaging in the microlending business requires a special license. Currently, there are no nationwide laws and regulations regarding market access of microlending companies, and relevant rules are issued by the local authorities. Thus, FinTechs in this area should decide on the operating location first and then check the local rules for further instructions. Generally speaking, the market access requirements for microlending companies are financial requirements. For example, in Shenzhen, the paid-in registered capital for the proposed microlending company registered as “limited liability company” shall be not less than RMB100 million (equivalent to approximately USD15.7 million or EUR14.2 million) (RMB200 million (equivalent to approximately USD31.5 million or EUR28.4 million) for “company limited by share”), and its main shareholder shall have a net asset not less than RMB0.1 billion (equivalent to approximately USD15.7 million or EUR14.2 million) and an asset-liability ratio not higher than 70%. 

Secondly, engaging in the factoring business requires a special license. As well as for microlending, the applicants for factoring should also check the local rules to get knowledge of the market access requirements. Generally speaking, such rules will include the financial requirements. For example, the paid-in registered capital for a proposed factoring company shall be not less than RMB50 million (equivalent to approximately USD7.9 million or EUR7.1 million) in Shanghai. 

Last, dealing of the non-performing assets requires a financial asset management license (AMC license). The market access requirements for the AMC license are quite strict, including (i) the provincial government will in principle only establish/authorise one (1) local AMC company to engage in the batch acquisition and disposal of non-performing assets of financial enterprises within the scope of the province; (ii) the minimum paid-in registered capital shall be RMB1 billion (equivalent to approximately USD157 million or EUR142 million). 

Additional comments regarding

the legal situation for loan-giving-, factoring-, brokerage, finetrading-, and ancillary services or what FinTech’s must be aware of in this business area Coupled with the clean-up of the P2P platforms, the CBIRC has issued the Strengthening the Supervision and Administration of Microlending Companies in September 2020, imposing a series of operational requirements, such as asking the microlending company to monitor the use of the loan, set up the interest in a reasonable manner, conduct the debt collection in a proper way etc. FinTechs in this area should be cautious about their business operation and about keeping compliance. 

Economic conditions

Market size for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services and biggest companies in this business area

i)   P2P business has now been expelled from China’s market.
ii)   According to the statistics from PBOC, there were 6,453 microlending companies nationwide by the end of 2021. The loan balance was RMB941.5 billion (equivalent to approximately USD148 billion or EUR134 billion), with an increase of RMB55 billion (equivalent to approximately USD8.7 billion or EUR7.8 billion) compared to the previous year. At present, the biggest microlending companies are mainly those run by the big internet groups, such as Chongqing Ant Business Credit Co., Ltd. of Ant Group, and Chongqing Duxiaoman Small Loan Co. of Baidu etc.
iii)   In late 2021, the China Banking Association released the China Factoring Industry Development Report (2020-2021). According to the report, the volume of domestic factoring business in 2020 is RMB2.25 trillion (equivalent to approximately USD354 billion or EUR320 billion), representing an increase of 18.45% from RMB1.90 trillion (equivalent to approximately USD300 billion or EUR270 billion) in the previous year. With respect to commercial factoring, most of the factoring companies with large business scale are invested and established by state-owned enterprises, central enterprises, and large listed enterprises, mainly serving the small and medium-sized enterprises upstream and downstream of the industrial chain or platform.
iv)  According to CBIRC, commercial banks had a non-performing loan balance of RMB2,847 billion (equivalent to approximately USD448 billion or EUR404 billion) in the fourth quarter of 2021, with a non-performing loan ratio of 1.73 %. There is still room for increment in the non-performing asset market. There are only five national financial asset management companies in China, namely Orient, Cinda, Great Wall, Huarong and Galaxy.


Additional comments regarding the economic situation for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services or what FinTech’s must be aware of in this business area

Whether it is microlending, factoring or non-performing assets disposal, the trend of deeper integration with FinTech will improve its market scale and market operation efficiency. However, the potential stricter supervision at the regulatory level might limit further development of the market.
 

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