Mobile apps offer instant loans in China
HONG KONG — Bai Shichao has a debt problem that is bigger than his paycheck — and that’s a problem for the rest of China, too.
Bai, a 30-year-old Beijing deliveryman, has borrowed heavily from China’s growing ranks of online cash lenders. In a country that lacks reliable ways to tell who might be a good borrower, these lenders use artificial intelligence and oddly personal data — like tracking how fast prospective borrowers type on their phones — to determine who will pay them back.
With Bai, they failed. First he borrowed to start a business. When that went bust, he borrowed to buy coal, rapeseed oil and sugar on China’s futures markets. Soon he began borrowing from one lender to pay another.
Today, Bai is more than $5,000 in debt, on a paycheck of less than $600 a month.
“It’s like gambling,” said Bai, a university dropout who has cycled through a series of menial jobs like security guard and waiter. “You start to gamble. Soon you get addicted to it.”
With more than $100 billion worth of loans and rising
“It’s like gambling. You start to gamble. Soon you get addicted to it.” Bai Shichao, who owes more than $5,000
worries among Chinese consumers about privacy, Beijing is moving to rein in a freewheeling, wellfunded boom in online personal loans.
In November, the People’s Bank of China, the country’s central bank, stopped companies and people from starting new online cash lending services. In early December, the China Banking Regulatory Commission said it would crack down on unlicensed cash loan companies and put a lid on high-interest loans.
China’s small loans are piling up. More than 8,600 companies offer some form of small loan, and about $145 billion of those debts remain unpaid, according to the People’s Bank of China. Other estimates run as high as $392 billion, according to the Boston Consulting Group. The government does not track default rates among online lenders, which disclose little on their own.
“We are worried that in an environment where there is no effective credit system, people tend to overborrow, especially when capital comes in,” said Bai Chengyu, an executive at the China Association of Microfinance, who is no relation to Bai Shichao.
These lenders originally emerged as a solution to that problem: how to lend to people with no credit history. By most estimates, that could total about 1 billion people.
China turned to the fast-moving technology sector. Today, thousands of Chinese apps offer cash or financing, often within seconds, based on a wide array of sometimes deeply personal information. China’s biggest Internet companies and financial names are funding the effort.
Two years ago the central bank asked China’s most successful Internet companies — including affiliates of sophisticated online giants Tencent and Alibaba — to create their own credit ratings systems. Since then, it has declined to issue licenses that would formalize those systems, and officials have indicated in local news reports that the plan has fallen short of expectations.
Last month, an Internet financial association affiliated with the People’s Bank of China announced plans to start a system that would crunch data from China’s big tech firms. Few details were provided.
Online lending also raises issues of privacy, a new but growing area of public concern in China. Many services have access to borrower’s smartphone data like location services, contact lists and call logs that can be used to track and harass delinquent borrowers.
The government has taken an interest, said Liu Yue, a partner at the Boston Consulting Group in Beijing. “But they don’t really know how to change that because the data is already being used.”
Bai Chengyu of the microfinance group added that “some cash loan companies use all kinds of soft violence to press customers to pay their loans back.”
Last month, Guangdong province in southern China warned that more than a dozen apps had security loopholes that allowed companies to steal user information. Some of this information was used to harass borrowers and their friends and families.
One of those, an app called Paipaidai, sends out users’ contacts without permission, authorities said.
One Paipaidai borrower, a man named Lin, said he had racked up about $75,000 in loans from 30 sources for living expenses and an investment in a shoe store. Lin, who asked that his full name not be used for fear of reprisal from debt collectors, said he receives calls every day.
Bai Shichao tapped some of China’s most closely watched and bestfunded online lending services during his borrowing spree.
One of those was Smart Finance. Its app helps it build a credit-rating system based on 1,200 data points related to user behavior, and connects potential borrowers with lenders. Backed by the venture capital vehicle of Kai-Fu Lee, the former head of Google China and a prominent startup investor, it has approved 1.5 million loans a month.
Bai said he received a $270 loan in September. Thanks to the high interest rate, the balance had grown to more than $330 by mid-November.
In exchange for loans, he has given these services considerable personal information — and they are now using it. First they call his emergency contacts, he said, then they call other people on his phone contacts.
Some debt collectors sent him texts saying they could trace his location through his phone. “It is meant to threaten you,” Bai said. That ability could not be independently verified.
Bai said he now realizes that it was not worth trading his privacy for quick cash. “But at that time, whenever I saw a cash loan service,” he said, “I wanted to borrow.”