Small Loans & China’s Prioritized Development of Rural Areas

小额贷款与中国农村优先发展

By: Dr. Mei Gechlik / On: October 26, 2022

Peter Griffin, Rural China, Publicdomainpictures.net

China’s Interim Measures for the Administration of Online Small Loan Business (Draft for Comments) (“Draft Interim Measures”) drew worldwide attention in November 2020 when the regulatory requirements therein were believed to have caused Ant Group’s IPO setback.

Almost two years have passed but the Draft Interim Measures has not been adopted.  Will China’s strong emphasis on prioritizing the development of rural areas speed up the adoption of the measures, the explicit function of which is to serve, inter alia, “farmers”?  Will current restrictions on foreign investment in small loan business be lifted to support China’s commitment to rural development?

China’s Rural Development Takes Priority

In his report delivered to the 20th National Congress of the Communist Party of China (“20th National Congress”) concluded a few days ago, President XI Jinping emphasized the need to “prioritize the development of agriculture and rural areas”.  Specifically, he stated that the “achievements of poverty alleviation” need to be “consolidated and expanded”.

Interestingly, in early 2022, the website of China’s Ministry of Agriculture and Rural Affairs published the 2022 Report on the Trends of the Development of Agriculture and Rural Areas in China, which was prepared by two research institutes associated with the Economic Daily and the China Agricultural University, respectively.  The report recommends, inter alia, that small loans be granted to support households that have been alleviated from poverty to help them “develop industries”.

The Impact of the Draft Interim Measures

The need for small loans to facilitate the development of rural areas should have motivated the authorities to turn the Draft Interim Measures into legally effective rules without delay.  Once issued, the measures will then be able to focus on the following functions, as stated in Article 3 of the Draft Interim Measures:

In issuing online small loans, a small-loan company should follow the principles of small amounts and decentralization, conform to national industrial policies and credit policies, and mainly serve small and micro-enterprises, farmers, urban low-income people, and other key service targets of inclusive finance, so as to put into practice the concept of inclusive finance, support the development of the real economy, and make full use of the channel and cost advantages of online small loans.

[emphasis added]

What caused the delay?  It is widely believed to be related to economic uncertainty arising from the pandemic.

“Although the measures are still in their draft form, they do have some teeth.”

Although the measures are still in their draft form, they do have some teeth.  Because various stringent requirements stated in the Draft Interim Measures (see below) are expected to remain the same in the final adopted version, businesses in this field have been reportedly taking actions to comply with these requirements.  It is wise for these businesses to act promptly because the Draft Interim Measures has a provision regarding retroactivity.  The provision states:

A small-loan company that has been engaged in an online small loan business, with the approval of the supervision and administration department, before the implementation of these Measures should fully meet all the requirements of these Measures within one year from the date of implementation of these Measures. The supervision and administration department should, in accordance with these Measures, re-examine and approve [the company’s] qualifications for operating its online small loan business.

[emphasis added]

As for the stringent requirements mentioned above, two stand out, covering “registered capital” and “equity management”.

  • Registered capital:

Article 10 of the Draft Interim Measures distinguishes two types of companies:

The registered capital of a small-loan company operating an online small loan business shall not be less than RMB 1 billion and shall be in the form of one-time paid-in monetary capital.  The registered capital of a small-loan company operating an online small loan business across provincial administrative regions shall not be less than RMB 5 billion and shall be in the form of one-time paid-in monetary capital.

[emphasis added]

  • Equity management

Article 20 of the Draft Interim Measures controls the number of small-loan companies in this way:

For the same investor, its related parties, and concerted actors, the number of small-loan companies operating an online small loan business across provincial administrative regions in which [these parties] participate as principal shareholders must not exceed two; otherwise the number of small-loan companies operating an online small loan business across provincial administrative regions in which [these parties] have controlling shareholding [interest] must not exceed one.

Entrusting others or accepting the entrustment of others to hold the equity of a small-loan company operating an online small loan business is prohibited.

[emphasis added]

A dozen companies affiliated with leading companies such as Ant Group, Meitun, and Tencent have reportedly gone through various steps to meet the above requirements, making sure that, once the measures are adopted, they will be ready to run their online small loan business nationwide.

Opportunities for Foreign Investors?

China’s market for both online and offline small loan business is enormous.  There are currently more than 6,000 small loan companies nationwide, with a loan balance of more than RMB 900 billion.

“China’s market for both online and offline small loan business is enormous.”

Given Chinese leaders’ desire to see that small loan business becomes regulated effectively to ensure the orderly development of rural areas, one must wonder whether the current restrictions imposed on foreign investors in this area, as stated in China’s Market Access Negative List (2022 Edition), will be lifted in the near future.  Taking this step will not only introduce healthy competition to improve the quality of small loan business, but also serve as a testament to President Xi’s vow during his press conference after the conclusion of the 20th National Congress: “China’s open door will only get bigger […to] create more opportunities for the world through our own development”.


The citation of this article is: Dr. Mei Gechlik, Small Loans & China’s Prioritized Development of Rural Areas, SINOTALKS.COM, In Brief No. 24, Oct. 26, 2022, https://sinotalks.com/inbrief/2022w43-english-small-loans-rural-areas.

The original, English version of this article was edited by Nathan Harpainter.  The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS.COM.

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