China Strengthens Laws Governing Consumer Financing Companies

China has increased the capital threshold for non-bank financial organizations that offer modest personal loans, further tightening regulations on consumer finance companies.

The National Financial Regulatory Administration’s Tuesday announcement of the measures will take effect on April 18.

It occurs at a moment when Beijing’s hold over the financial industry is getting stronger.

According to the new regulations, companies that wish to offer consumer loans must have a minimum registered capital of 1 billion yuan ($139 million), with the exception of loans for the purchase of a home or vehicle. Reuters reports that’s three times the minimal amount mandated by the 2014 regulations.

The statement categorizes investors in consumer financing firms into two groups: primary investors and general investors. A primary investor must own a minimum of 50% of the company.

By the end of the most recent fiscal year, financial institutions that are major investors must have total assets of at least 500 billion yuan ($69.45 billion), or the equivalent in freely convertible currency, according to the regulator.

As per the NFRA, major investors who are non-financial institutions are required to have an operational income of at least 60 billion yuan ($8.3 billion) in the last fiscal year.

China has made an effort in recent years to slow down the explosive rise of non-bank debt, particularly that issued by shadow banks operating outside of the established banking system.

The Asia-Pacific area as a whole’s creditworthiness has been negatively impacted by the nation’s declining growth.

Early in December, Moody’s revised down from stable to negative the outlook for China’s government credit ratings, citing the possibility that Beijing’s efforts to strengthen the country’s finance sector could weaken China’s institutional, fiscal, and economic clout.

At its “Two Sessions” meeting earlier this month, China announced the sale of “ultra-long” special bonds for important projects and set a GDP growth target of “around 5%” for 2024.