Chinese youth are spending way more on credit than previous generations according to a spending report released in May.
According to the report, which was co-produced by research institute DT Caijing and Huabei (“just spend”), a consumer financing service featured within Alipay Wallet that offers loans of up to 30,000 yuan (US 4,348), roughly half the the users of Huabei are under 27 years old. Older generations, in contrast, are more likely to tap into their savings account.
Of all users of Alipay (the e-payment division of Alibaba Group), 37.4 percent of the population born after 1990 set up a credit line as their primary method of payment. For those born after 1985, the number was smaller at 31.9 percent, and even smaller (25.2 percent) for those born before 1985.
The same study also shows that over 99 percent of the under-27 set on Huabei have paid off their credit lines on time in the past and nearly 70 percent of them spend as much as two-thirds of their monthly credit limits.
Since Alipay launched Huabei in April 2015, the online credit card has caused a huge boost in spending. On Single's Day (a November shopping holiday created by Alibaba intended to be akin to "Black Friday" in the U.S.) in 2015, Technode reported that 8.5 percent of total sales, worth some 60-million yuan, was settled through Huabei. By the end of 2016, the number of its registered users has exceeded 100 million and the number of active users is close to 80 million, based on a report by domestic Chinese media.
JD.com offers a similar service called "Baitiao" that was launched in 2014 with up to 15,000 yuan loans. The size of the online consumer finance market grew to 437 billion yuan in 2016 from 6 billion in 2013, according to findings of the domestic research company iResearch on May 5.
The report once again reflects the organic growth and maturity of China’s personal credit market. As the Chinese government is on a mission to shift the country’s economic growth model to a consumer-oriented one, Chinese tech companies such as Alibaba and Tencent, which released a similar service in 2014, have been on the forefront of developing financial products that can satisfy the recent spike in demand.
There has been increased concern that Chinese consumers were keeping too much of their finances tied up in savings, and not spending enough to support the economy in China and maintain growth rate according to WalktheChat, a WeChat marketing agency in China, in a recent WeChat post.
“This data from Alipay is extremely encouraging," said the writer. "It suggests that younger users are much more willing to use credit in order to spend, which will in turn boost inner consumption.”
The new credit habits of Chinese millennials and the use of Huabei also have an implication on the country’s prosperous luxury market. Luxury brands should take note of this trend to better serve those with a higher comfort level for credit.