Chinese President Xi Jinping and Premier Li Keqiang have both made public announcements about their support for privately-run companies as part of the government’s efforts to balance the crackdown on high debt levels while maintaining economic growth.
The Chinese central bank has already eased lending rules to help small businesses easily obtain funds and free up additional cash for lending.
In the past, traditional banks have been unwilling to extend loans to small business in the past due to greater business risks, limited profitability and their lack of collateral. In addition, almost 90 million micro and small businesses in China do not have a credit line with a bank. These new rules are aimed at these issues, in an effort to resolve them and ultimately help the country grow economically.
These new rules are providing business opportunities for financial technology firms such as Tencent-backed WeBank and Alibaba-backed MYBank. Online lenders can use social network data or payment information to evaluate the ability of a business to pay back loans and to determine what kind of loan a business can apply for. In addition, online financial service firms can provide loans in just a few minutes which is much faster compared to traditional banks. They also issue loans that are much smaller than banks which do not provide loans less than 1 million yuan.
As an example, the average small business loan at MYBank is only about 9,900 yuan. But despite the small size of the loans, small businesses had a cumulative total loan of 1.19 trillion yuan obtained through the online platform. Fintech companies have already adopted a strategy of partnering with existing financial institutions in order to survive potential future stringent regulation. With these new partnerships, a new industry seems to be forming focusing on supporting Chinese small businesses