The market for consumer lending in China is expected to nearly double over the next five years as Beijing pushes for consumption to make a greater contribution to economic growth.
A report from global consulting firm McKinsey forecasts that the balance of narrowly defined consumer loans in China (excluding housing, vehicle and education loans) will double by 2025, rising from around 15 trillion yuan at present to approximately 29 trillion yuan.
Ji Xiangru (吉翔如) said that banks, Internet platforms and licensed consumer finance companies can all be expected to be leading players in China’s burgeoning market for consumer loans.
China’s consumer finance market entered a rapid growth phase in 2015, maintaining average annual growth of over 20% for a five year period.
Data from the Chinese central bank indicates that China’s short-term consumer loan balance rose from 4.1 trillion yuan in 2015 to 9.92 trillion yuan in 2019, for an annual compound growth rate of 24.72%.
The overall consumer loan balance rose from 18.95 trillion yuan in 2015 to 43.97 trillion yuan in 2019, for an annual compound growth rate of 23.42%.
Qu Xiangjun (曲向军), McKinsey’s global senior managing partner and head of McKinsey China’s financial institutions consulting business, said that 2020 will be a major turning point for China’s consumer finance market, which will face the three challenges of reduced profitability as a result of declining interest rates, intensifying market competition and rapid growth in non-performing assets.
Qu sees the consumer finance market bidding farewell to its rapid growth phase, and transiting to more standardised and mature operating models.
In the next five years McKinsey expects growth in the Chinese consumer finance market to mainly be spurred by increases in average disposable incomes driven by macro-economic growth, with consumption expenditures also rising as a share of Chinese GDP.
Savings rates will continue to decline, and the coming of age of people born in the 1990’s and the 2000’s will bring changes to consumption and lending patterns.
McKinsey also sees unsecured consumer loans becoming a key engine for growth in bank retail operations over the next five years, licensed consumer finance companies entering a period of rapid growth, and the concentration of the online micro-loan market likely increasing.
Consumer finance in China will also see the widespread deployment of key fintech applications, including artificial intelligence, big data and the blockchain.