Banking & Finance

The cheque republic

An Eastern European firm is at the vanguard of Chinese consumer finance

Save less, spend more

When 36 year-old Zhang Hongqi went to buy a new mobile phone earlier this month, he didn’t know that he was about to take part in Chinese financial history. He didn’t pay for all of the phone in one go – instead, he took out a small personal loan that he will repay over the next 12 months – making him the first person to use a consumer finance company in China.

“I did not expect that I could buy such an expensive mobile phone,” he told state broadcaster, CCTV. “I did not have enough money up front. But now, I can make such a purchase without using my cash.”

Zhang took out his loan with Bank of Beijing, which is one of the four institutions chosen to set up the first wave of consumer finance companies in China. The other domestic companies were also natural choices – Bank of China and Bank of Chengdu – but the only foreign company to enter this new market originates from a country that is better known for its beer than for financial innovation: the Czech Republic.

PPF Group received approval to establish a consumer finance company in Tianjin. The company will be called Home Credit Consumer Finance and it will help consumers to purchase durable goods, as well as things such as education and travel.

And by winning approval to operate in the northern city, the Czech company saw off a domestic competitor, HNA Group (see page 8).

PPF’s chief representative in China, Miller Koresa, estimates that Home Credit will receive half a million loan applications in 2010; and by 2011, he believes that it will be making large profits, reports 21CN Business Herald.

While PPF might not be a household name, it is a major player in Eastern Europe’s consumer finance business, with operations in its native Czech Republic, as well as Russia, Belarus, Ukraine and other countries in the region. In 2008, Home Credit issued €3.6 billion ($4.8 billion) worth of loans (not including the loans made by its businesses in China and Vietnam). It also has the largest market share of point of sale loans in Russia.

It is this experience in Eastern Europe that made the regulators chose PPF over its competitors, according to 21CN Business Herald. Another factor is that the company has managed to successfully localise its technology in China, which the regulator hopes will provide a benchmark for the consumer finance pilot.

Since Home Credit has no competition in Tianjin, its success will depend very much on whether local people will take advantage of the new opportunity to access easier credit when they are out shopping. The government hopes they will. It believes that consumer finance could play an important role in stimulating domestic consumption, and help China reduce its dependence on export-driven economic growth.

But the Chinese are notorious savers, so if they want to buy a new phone or a refrigerator, they usually do so with cash saved in the bank. And the idea of using a loan to make a purchase has yet to catch on: last year, personal consumption loans in Shanghai, not including mortgages, accounted for less than 2% of all bank lending.

It will be hard to break down this aversion to borrowing. One young engineer told the Beijing Review that he would only take out a loan to buy a house, and even then he wouldn’t be happy: “I hate the feeling of waking up in the morning, thinking about how much money I owe the bank.”


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