Ant Group to set up unit in Chongqing

Ant Group, which runs China's ubiquitous payment app Alipay, is setting up a consumer finance company in the southwestern city of Chongqing, adding a new heavyweight to China's booming consumer finance market.

With a registered capital of 8 billion yuan ($1.16 billion), the new entity is 50-percent controlled by Ant and has a consortium of investors, including Nanyang Commercial Bank and Cathay United Bank (China) Ltd, said Jiangsu Yuyue Medical Equipment&Supply, a minor stakeholder, in a regulatory filing on Saturday.

When operational, it will be the largest consumer finance company of its kind.

Under Chinese rules, consumer finance companies are allowed to lend 10 times their capital. In comparison, the leverage ratio of an online microloan firm is roughly just one to three times that amount.

"This would hence be a great leap forward for Ant, which has microloan companies in Chongqing that operate its consumer-lending platforms Huabei and Jiebei, which currently operate under microloan licenses," said Cao Lei, e-commerce director at the consultancy Internet Economy Institute.

Ant, which claims to have 1 billion global users, has already gotten a range of financial licenses in China covering payments, online banking, insurance and micro lending.

Last month, the company, in which e-commerce giant Alibaba Group Holding Ltd holds a 33 percent stake, began the process for a dual-listing in Hong Kong and Shanghai that would give it a $200 billion valuation.

"The move is closely linked with its IPO strategy, because consumer finance is a key business area it is focusing on," said Dong Yizhi, a lawyer at Shanghai Joint Win Law Firm. "It is worth the effort to obtain a consumer finance license due to its scarcity."

The asset scale of consumer finance companies reached 498.8 billion yuan by the end of 2019, up 28.67 percent on a yearly basis, said a report published by the China Banking Association last week. Loan balance jumped 30.5 percent year-on-year to 472.3 billion yuan during the same period.

Among the 27 consumer finance companies holding a license, a growing number of new entrants are internet companies like Baidu, JD and Xiaomi, as they bank on the troves of data and algorithms for risk control.

Internet-based consumer financing exploded 400 times to nearly 8 trillion yuan in four years to 2018, according to Peking University's Guanghua School of Management.

"While the industry is currently lightly monitored, longer-term tightening of regulation is highly expected, especially as more internet players enter the game," Dong said. "We cannot rule out the possibility that such business units would be spun off in the future."

Over 60 percent of the young Chinese consumers are expected to increase spending in the aftermath of COVID-19, said a survey conducted by Fenqile, China's first installment e-commerce platform owned by consumer finance group Lexin Fintech.

The use of consumer credit is on the rise as it is increasingly seen as an effective solution to cushion the impact of the contagion on personal finances.