Since July, a number of P2P companies in China went bust, causing many retail investors to lose their savings. (We will explain why these P2P companies went bust in another article.)

This episode prompts people to wonder whether government will come down hard on the consumer fintech industry as a whole to safeguard social stability and prevent further eruptions.

A fact to back this thought up: regulators in China have a track record of outright banning schemes that go out of control – just look at the ICO ban last year and the recent crackdown on crypto-focused media.

Consumption is key

However, we do not think it is feasible for government to clamp down on lending-based consumer fintech.

The reason: domestic household consumption is a very important part of GDP, and hence economic development.

In 2017, consumption made up 39% of China’s GDP; in comparison, in the US consumption contributed to 70% of the country’s GDP.

The need to stimulate domestic consumption is actually quite pressing on the agenda of Chinese government. In a decree announced by China Banking Regulatory Commission (CBRC) on 18 August, we could find the following text:


Translation: “Actively promote consumer finance, strengthen the role of consumption in economic development. Cater to multiple layers of consumer demand, provide and improve differentiated financial products and services. Support the development of consumer loans, satisfy the people’s growing demand for good life. Innovate financial service offerings, actively meet upgraded financial needs for travel, education, culture, health and ageing.”

Can anything send a more explicit signal than that?

CBRC does not have an easy job

Not to the loansharks

You might say, but they can still curb online lending, because the interest rate is high.

Theoretically, that makes sense. But it is not really practical. The reason is very simple: when there is a demand for consumer credit in the market, someone will fulfill it.

So curbing online lending, which is easy to regulate and monitor, would drive more demand towards loan sharks, which are much harder to monitor and impossible to regulate – and much more sinister.

Sounds like our longstanding discussion about the legalisation of drugs and prostitution, doesn’t it?

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].


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Amresh used to cook and run food stalls. Stumbling into the tech industry by accident, he decided to stay for the long run. He joined Momentum Works in 2016 as a Project Manager. He is intrigued by ever changing internet businesses and its impact on day to day life. His interest lies in football, food and cryptocurrencies.