Since the outbreak of the COVID-19 pandemic, the Chinese economy has been persistently sluggish, with the youth unemployment rate soaring. Many people rely on borrowing to repay mortgages and maintain daily expenses. Statistics show that in 2024 alone, an estimated 25 to 34 million people in China were in arrears with their personal loans. In this context, online lending has become a hot industry; however, the high interest rates have plunged more Chinese into a debt quagmire.
Chinese online lending platforms have low thresholds, quick loan disbursements, extensive advertising, and a lack of a social credit system, leading more and more people to live on borrowed funds. Especially for those who have been unable to find jobs for a long period, online borrowing has almost become their only means of subsistence.
According to the think tank Gavekal Dragonomics, in 2024 alone, the number of individuals in China defaulting on personal loans reached as high as 25 to 34 million. This number has doubled compared to five years ago. If overdue but not yet default loans are included, the number of risky borrowers could reach 61 to 83 million, equivalent to 5% to 7% of the population aged 15 and above.
A report by BBC Chinese on the 9th highlighted that behind the high number of debt defaulters in China is the continuous lowering of the “lending sentiment” by financial service platforms to promote borrowing and consumption. This reality oddly aligns with the consumer-driven environment that the Chinese authorities have been encouraging in recent years.
Online lending platforms in China can generally be categorized into three main types: large lending platforms that rely on products from e-commerce giants such as Alibaba’s “Huabei” and JD.com’s “Jingdong White Bar,” which are alternative to credit cards with stricter qualification reviews. Medium-sized lending platforms include internet lending platforms like “PPdai.” Small lending platforms include those smaller than “PPdai,” as well as loan sharks.
To compete with bank loans and large lending platforms, small and medium-sized lending platforms constantly advertise with terms like “low risk,” “short time,” and “easy.” The money from online loans typically arrives quickly, but users may not repay early and may face mandatory installment payments to ensure interest returns.
However, the interest rates on online loans are higher than those from banks. According to Mr. Wang, a frequent online borrower, borrowing 10,000 RMB from large lending platforms like JD.com or Alibaba might require repaying 11,000 RMB in installments, whereas borrowing from small to medium online lending platforms could cost up to 13,000 RMB.
In April of this year, “Cai Xin Data” also reported cases of high-interest loans. Professor Jiang Shufang from the Economics Department of Shandong University applied for a loan on the “TechFin” platform of “JD Financial.” Due to a mistake, he accidentally clicked on the “PPdai-Reserve Fund” with an annual interest rate as high as 24%, and the platform disbursed 108,000 RMB. Upon realizing the error, Mr. Jiang immediately chose to repay the loan, but the platform demanded not only the full principal but also an additional 3,240 RMB in interest fees, representing a daily interest rate of 3% and an annual interest rate of 1,080%.
What are the consequences for borrowers who are unable to repay the loans obtained from online lending platforms?
Employees of top Chinese securities companies explained to BBC Chinese that the credit supervision system for small and medium loans in China is relatively lacking. China’s social credit system is divided into several levels, with debtors who fail to repay not being subject to being labeled as “dishonest individuals” or included on social credit blacklists unless they default on large loans or show intent for fraud. If the borrowers do not consider buying houses or cars, there are practically no means of restriction.
When platforms lend out funds without planning to recover them entirely, they package these debts as assets and sell them to others, known as non-performing asset disposal business. The choice of whether to resort to violent debt collection becomes the decision of third-party institutions.
According to “Free Finance,” in 2024, housing loans accounted for 65% of household loans in China (excluding commercial loans). Most mortgage loans are issued by state-owned banks, which now have to find ways to reclaim lent funds from those who cannot repay. However, to avoid escalating social conflicts, their approach is cautious. In contrast, online lending platforms take aggressive debt recovery actions, leaving many borrowers suffering.
“Economist” points out that the main reasons why so many Chinese are deeply mired in debt come from state-owned banks in China and tech platforms like Ant Financial (Alipay) and WeBank.
Regardless of the causes, many Chinese are now in the throes of a debt crisis, even having to deal with aggressive debt collectors.
Even more alarming is the occurrence of online lending platform collapses. Since 2016, there have been waves of collapses in small P2P platforms. From 2018 onwards, large platforms have also gone bankrupt one after another, with unpaid loans amounting to 13 trillion RMB. Tens of thousands of P2P victims have lost everything, becoming “P2P financial refugees.”