Consumer credit plays a main role in driving China’s consumer spending and its future economic growth. Its contribution to overall retail sales more than doubled to 32% in 2019, from 15% in 2014.
By sector, home appliances have the largest share of loan proceeds, at 26%, followed by education training at 16%, home decoration at 14% and travel expenses at 10%.
According to Fitch Ratings, consumer lending activity in China is growing faster and is expected to support consumption growth.
Moreover, Fitch Rating estimates that online consumer loans among the young population will make up half of the overall consumer loans in China and facilitated the country’s credit extension.
However, increasing exposure to consumer lending activities may cause corporates to face higher credit risk and lead to additional capital needs for their financial service operations.
China online microloan’s (OM) fast development and rising importance to the economy prompted the government to tighten the qualification, use of leverage and OM-backed asset-backed securities of OM companies.
Therefore, tightened regulation is expected to slow near-term online consumer loan growth, although other types of consumer lending should continue to increase on rising demand and low penetration.
However, the overall impact on retail sales is likely to be limited, as further penetration of household ownerships and China’s rising consumption trend should support consumption in the long run.
As China’s consumer credit market remains under-penetrated, we can expect consumer credit to play an important role in consumption growth, particularly through online penetration.