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China’s prolonged credit-scoring saga amasses risk

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Alipay logo is pictured at the Shanghai office of Alipay, owned by Ant Group which is an affiliate of Chinese e-commerce giant Alibaba, following the coronavirus disease (COVID-19) outbreak, in Shanghai, China September 14, 2020. REUTERS/Aly Song

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HONG KONG, June 24 (Reuters Breakingviews) - Beijing’s clumsy campaign to build a national consumer credit-scoring system has reeled off on a new tangent. Financial technology titan Ant may be trying to escape an ill-conceived central bank agency by starting a venture with state-owned enterprises. That might be better for Jack Ma’s company, and perhaps end a long-running struggle over data-sharing with regulators too, but it’s not in the public interest.

The People’s Bank of China wants more visibility into the country’s burgeoning consumer debt market. On average, people now owe a greater share of their annual income than Americans, a recent household finance survey found. The Rhodium Group estimated that Chinese households added $4.6 trillion in debt between 2014 and 2019.

Low credit card penetration means much of that credit flows through non-bank channels. Yet it is not all invisible. Thanks to the explosion in Chinese e-commerce, companies including Alibaba (9988.HK), Tencent (0700.HK) and Ant have accumulated vast troves of data on shopping habits, payment activity and defaults. For commercial banks trying to assess risk from individual borrowers, any credit scoring should incorporate such information.

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One of the PBOC’s first ideas was to give Ant and a handful of its rivals 8% stakes in an entity called Baihang Credit, which the central bank oversees. Since Ant has more data and analytical capabilities than the others, the arrangement would effectively transfer earnings to weaker competitors – and that assumes Baihang will seek to generate profit, as opposed to just shifting intellectual property from the private sector to state-owned banks.

In the proposed alternative, as outlined by the Wall Street Journal on Wednesday, Ant would develop its own scoring system. The idea has flaws. For one thing, Ant would struggle to get rivals like Tencent and Pinduoduo (PDD.O) to share their data with such an entity.

The simplest and most reliable solution is for everyone with lending records to contribute or sell them to a third party: a Chinese version of Equifax. Such an outfit could aggregate it, crunch it and flog it to lenders. Instead, the PBOC has overcomplicated matters. As consumer-default risk mounts, Beijing is wasting precious time.

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CONTEXT NEWS

- Financial technology giant Ant is negotiating with Chinese state-owned enterprises to create a credit scoring company, the Wall Street Journal reported on June 23, citing unnamed sources.

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Editing by Jeffrey Goldfarb and Katrina Hamlin

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