Chinese firms scrap plans for micro loan business amid crackdown on 'blind borrowing'

BEIJING (Reuters) - A Chinese menswear firm and a leading maker of POS terminals said late on Wednesday they had given up plans to set up micro-loan units, one day after policymakers took steps to tighten supervision of the lightly regulated sector.

Zhejiang Busen Garments Co 002569.SZ, whose shares are traded in Shenzhen, was the first listed firm to announce the termination of such a plan since Beijing on Tuesday halted approval for the setting up of new internet micro lenders.

Shenzhen-listed Nexgo Inc 300130.SZ, among the largest manufacturers of POS terminals in the world, soon followed with a similar announcement.

In a commentary on Thursday, the ruling Communist Party’s official People’s Daily said the rapid increase in so-called payday loans poses an alarmingly large amount of hidden risks.

With the bar for borrowing low and advertising exaggerated, some people are likely to “blindly borrow” from those platforms, resulting in a large number of subprime loans, according to the commentary. Young borrowers and financially illiterate people with low incomes were particularly vulnerable, it added.

Companies providing small loans, especially over the internet, have expanded rapidly in the past year, partly due to loose government rules. The rush to supply credit has also led Chinese micro-loan firms such as Ant Financial-backed Qudian Inc QD.N to raise funds in New York.

China's top home appliance retailer Suning Commerce Group Co 002024.SZ has given out 26 billion yuan ($3.94 billion) in nearly 20 million small loans since it launched its lending business in 2015, the company told Reuters in an email.

A private estimate puts the amount of online consumer loans at 1.14 trillion yuan, though still a small fraction of China’s total 30 trillion yuan of household borrowing.

But much of the online micro lending does not show up in official data, analysts say, making it difficult for financial regulators to keep track of.

Such firms meet demand for credit from individuals who have been shunned by banks, which typically prefer big corporates. Loan amounts span from a few hundred yuan to tens of thousands, with borrowers typically lacking steady incomes or credit history.

Beijing on Tuesday also told regulators to halt granting new approvals for micro-loan firms to conduct loan business across regions in China.

Shares in Busen Garments fell 2.01 percent early on Wednesday, versus the 0.91 percent decline in the broader Shenzhen A shares Index .SZSA. Nexgo rose 6.25 percent.

Overnight in New York, Qudian shares extended their decline, tumbling more than 16 percent.

PPDAI Group Inc PPDF.N slid 24.2 percent, while Jianpu Technology Inc JT.N, which made its debut in the United States this month, fell 12.9 percent.

Reporting By Ryan Woo and Shu Zhang; Additional reporting by Elias Glenn and Yawen Chen in BEIJING; Editing by Nick Macfie and Stephen Coates