The Strategist

China to tighten online lending rules

02/22/2021 - 03:44

China has unveiled new online lending rules that are tightening conditions for fintech companies. The changes will affect Jack Ma's Ant Group business and seriously affect the company's market valuation, experts say.

The China Banking and Insurance Regulatory Commission has announced new rules for the online lending market. From 2022, Chinese online platforms that partner with banks to lend to the public will be required to fund at least 30% of each loan. 

The Chinese regulator will also limit the amount of capital that commercial banks can allocate to loans in partnership with online platforms: no more than 50% of all loans disbursed by the bank. 

The Financial Times calls the changes "a new blow to Jack Ma's Ant Group". Experts interviewed by the publication note that the new rules could have a serious impact on the market valuation of the Chinese billionaire fintech company, which was about to list its shares on the stock exchange. 

APS Asset Management founder Wong Kok Hoi told the FT that China's online lending market could "shrink significantly" as a result of the reform, and companies that issue loans would have to operate almost like commercial banks. "Ant's business model will have to change radically," the expert said. 

The new rules "will hurt one of Ant's fastest-growing business segments", which will almost certainly hit the fintech company's market valuation, Peking University finance professor Michael Pettis told the publication.

Ant Group, which is a subsidiary of Alibaba, owns Sesame Credit, one of China's largest private credit scoring platforms, which scores borrowers based on their use of Ant-related services. The fintech company also owns China's largest digital payment platform, Alipay.