Buy now, pay later: Easy credit leaving China's millennials spent

Chinese people look at Apple iPhone 8 displayed in an Apple showroom in Shanghai on Sept 22, 2017. A proliferation of consumer credit services offered by e-commerce companies now makes it easier for China's millennials to buy the latest consumer gadg
Chinese people look at Apple iPhone 8 displayed in an Apple showroom in Shanghai on Sept 22, 2017. A proliferation of consumer credit services offered by e-commerce companies now makes it easier for China's millennials to buy the latest consumer gadgets and other services. PHOTO: AFP

BEIJING - With a price tag of US$999 (S$1,350) in China, the new iPhone X costs more than the 5,700 yuan (S$1,200) that office assistant Zhao Qijun earns a month.

But that's not going to stop the 25-year-old Beijing resident from getting Apple's new smartphone.

A proliferation of consumer credit services offered by e-commerce companies such as Alibaba and JD.com now makes it easier for China's millennials to satisfy their hunger for the latest consumer gadgets and other services.

Unlike their grandparents and parents, they are at ease with spending borrowed money.

"I hate to hesitate when I see something desirable. I need to have it now," Ms Zhao told China Daily.

After all, credit is just a few tabs away on mobile phone screens - the Ant Check Later service offered by Alibaba's affiliate Ant Financial Services extends credit ranging from 500 yuan to 50,000 yuan based on its own risk assessment of its customers. Credit is interest-free for up to 41 days.

Since regulators opened up the online credit market three years ago, the market has boomed: it grew from six billion yuan in 2013 to 437 billion yuan last year, according to findings of domestic research company iResearch on May 5.

This burgeoning online credit market is forecast to be worth 3.4 trillion yuan by 2019, with the rise in consumption expected to help China wean itself off investment-led growth, according to the Financial Times.

But data from the Bank for International Settlements and Thomson Reuters points to a worrying trend.

Chinese household debt this year is expected to soar to 45 per cent of the country's gross domestic product, or GDP, up from the 10 per cent in 2006.

Professor Oliver Rui, a professor of finance at the China Europe International Business School, feels that the younger generation is more eager to experience "instant gratification" instead of doing long-term financial planning.

Ms Zhao once used up the 6,000 yuan quota in her Ant Check Later account after buying a handbag. It wiped out her monthly salary, leaving her with no money to pay rent, and her parents had to bail her out.

A study of 450 million Alipay users released earlier this year showed that cash-strapped millennials spent an average of US$1,080 per person through the mobile wallet app, the biggest in China by market share.

In June, a post-graduate student, who wanted to be known only by his surname Guo, paid 10,000 yuan for a dermal filler and a Botox injection using money borrowed from the Jiebei (Just Borrow) platform, a small loans service by Alipay.

With part-time work, he paid off the loan in six months "with a few hundred yuan in interest", he told China Daily.

There is also Huabei, or Just Spend, a virtual credit card launched in late 2014 that allows its 100 million users to pay in instalments for purchases made on Taobao.com and Tmall, the e-commerce platforms of Alibaba.

During last year's Singles' Day shopping festival, the world's largest online shopping event with sales hitting a record US$18 billion, one in three transactions was made using the Huabei deferred payment option.