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Credit and Loan Products - China - July 2016

“How credit and loan products could be designed and operated is more influenced by regulators than providers. In China, benefiting from the Inclusive Finance policy, internet finance players like peer-to-peer lending firms, internet-based banks and equity crowdfunding platforms are thriving. Consumers are enjoying the convenience resulting from the competition between these operators and traditional banks. Failures should be noticed, but they should not be overemphasised. With more proper regulations, the household loan market is expected to continue to grow with more responsible firms and innovative products.”
– Aaron Guo, Senior Research Analyst, China

This report answers the following key questions:

  • What could be learnt from internet-based financial players?
  • Is the penetration of credit cards coming to an end?
  • How to attract young adults to apply for loans?

There is much talk in the market how China faces an increasingly high bad debt ratio, that irresponsible companies are raising funds illegally and how Chinese consumers are refusing to borrow. So what is the real situation? This report will look at credit and loan products for households in China, from the perspectives of regulators, loan providers and borrowers. This report contains three main sections – The Market, Key Players and The Consumers, and discusses three key issues – what could be learnt from internet finance businesses, whether or not the penetration of credit cards is reaching saturation, and how to attract young adults to apply for loans.

For the purpose of this report, the credit and loan products discussed are a number of financial products, including both collateral and non-collateral loans, borrowed from loan or credit providers by households.

In China, this is mainly in the form of consumer loans, such as money owed on credit cards, and operating loans to households for the purpose of running businesses. Both forms are included and discussed in this report.

While in some countries consumer loans usually refer to money borrowed to finance the purchase of consumer goods, such as fuel, food, etc, this report follows a wider definition of consumer loans used by People’s Bank of China (PBoC), which includes mortgages, car loans, money used to finance home renovation, education, and luxuries as well as general household purchases. Loan providers could be traditional banks, internet-based banks, peer-to-peer lending companies and other financial institutions, or non-financial institutions like online retailers that provide credit services.

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Table of contents

  1. Overview

    • What you need to know
      • Covered in this report
        • Excluded
          • Figure 1: Definition of low/mid/high MHI groups, by city tier
      • Executive Summary

          • The market
            • Figure 2: Total loans to households, 2011-21
            • Figure 3: Percentage of GDP accounted for by total household loans, 2011-16
            • Figure 4: Amount outstanding on consumer loans, by short term and long term, 2007-16
            • Figure 5: Amount outstanding on operations loans, by short-term and long-term, 2007-16
          • Companies and brands
            • Figure 6: Market share of total loans to households, 2011-15
            • Figure 7: Market share of outstanding credit loans, 2014-15
          • The consumer
            • Figure 8: Usage of credit and loan products, 2016 vs 2014
            • Figure 9: Purpose for using credit or loan products, April 2016
            • Figure 10: Selected credit card application channel, by monthly personal income, April 2016
            • Figure 11: Important factors for choosing credit card, April 2016
            • Figure 12: Usage habit and attitude towards credit card, by gender, April 2016
            • Figure 13: Perception of different loan providers, April 2016
          • What we think
          • Issues and Insights

            • What could be learnt from internet-based financial players?
              • The facts
                • The implications
                  • Is the penetration of credit cards coming to an end?
                    • The facts
                      • The implications
                        • How to attract young adults to apply for loans?
                          • The facts
                            • The implications
                            • The Market – What You Need to Know

                              • Household loans will continue to grow as a total…
                                • …yet different sectors meet different conditions
                                  • Innovative products drive the market
                                  • Market Size and Forecast

                                    • Loans to households continues to grow
                                      • Figure 14: Total outstanding loans to households, 2011-21
                                      • Figure 15: Total household loans as a percentage of GDP, 2011-16
                                      • Figure 16: Total loans to households, as a percentage of GDP, by nation, 2011-15
                                    • Fast growing consumer loan sector
                                      • Figure 17: Outstanding balance on consumer loans, 2011-21
                                      • Figure 18: Amount outstanding on consumer loans, by short term and long term, 2007-16
                                    • Stagnant operation loan sector
                                      • Figure 19: Balance outstanding on operation loans, 2011-21
                                      • Figure 20: Amount outstanding on operations loans, by short term and long term, 2007-16
                                  • Market Factors

                                    • Interest rate liberalisation
                                      • Consumer spending attitude
                                        • Usage of credit cards
                                          • Figure 21: Number of banks in China with over RMB 100 million revenue in credit card business, 2011-15
                                        • Increasing mortgages
                                          • Figure 22: volume and the average price of traded commercial residential apartments, 2011-15
                                        • Peer-to-peer lending
                                          • Private banks and internet-based banking
                                            • Figure 23: Details of first five private banks in China
                                          • Deleveraging
                                          • Key Players – What You Need to Know

                                            • Traditional banks are facing intense competition
                                              • Internet financing
                                                • More regulation and entrants can be expected
                                                • Market Share

                                                  • Big Four rule the loans to households market
                                                    • Figure 24: Market share of total loans to households, 2011-15
                                                  • Best performing credit card issuer is China Merchants Bank
                                                    • Figure 25: Market share of outstanding credit loans, 2014-15
                                                    • Figure 26: NPL ratio of leading banks, 2014-15
                                                • Competitive Strategies

                                                  • Customised credit cards
                                                    • Premium cards
                                                      • Co-branded credit cards
                                                        • Specialised loan products by P2P firms
                                                          • Leveraging the power of big data
                                                          • Who’s Innovating?

                                                            • Promote products by usage occasions
                                                              • Instalments for everything
                                                                • Targeting college students
                                                                  • Equity crowdfunding
                                                                    • Third-party credit verification
                                                                    • The Consumer – What You Need to Know

                                                                      • Consumers increasingly using loans
                                                                        • Credit cards encounter promotional issues
                                                                          • Diversified usage attitudes towards credit cards
                                                                            • P2Ps are gaining ground
                                                                            • Usage of Credit and Loan Products

                                                                              • Internet pay-by-credit service becomes No.2 loan type, after credit card
                                                                                • Figure 27: Usage of credit and loan products, April 2016
                                                                              • Men take out more loans
                                                                                • Figure 28: Usage of credit and loan products, by gender, April 2016
                                                                              • Credit card penetration skews towards younger consumers
                                                                                • Figure 29: Usage of credit card, by age and gender, April 2016
                                                                              • Young adults are fans of Internet pay-by-credit services
                                                                                • Figure 30: Usage of internet pay-by-credit service, by age and gender, April 2016
                                                                              • 25-39-year-olds are in need of loans the most
                                                                                • Figure 31: Usage of any type of loan, by age group, April 2016
                                                                              • High earners are willing to try new loan types
                                                                                • Figure 32: Usage of credit and loan products, by monthly household income, April 2016
                                                                            • Reasons for Using Credit and Loan Products

                                                                              • Closer to daily life
                                                                                • Figure 33: Purpose of using credit or loan products, April 2016
                                                                              • Different products for different purposes
                                                                                • Figure 34: Purpose of using credit or loan products, by product type, April 2016
                                                                              • Penetration by usage occasion
                                                                                • Figure 35: Top choices for different purposes, April 2016
                                                                              • Ever demanding young adults
                                                                                • Figure 36: Purpose of using credit and loan products, by age group, April 2016
                                                                                • Figure 37: Purpose of using credit or loan products among 20-24s, by product type, April 2016
                                                                              • Broad loan needs of middle-low income groups
                                                                                • Figure 38: Purpose of using credit or loan products, by monthly household income, April 2016
                                                                            • Credit Card Application Channel

                                                                              • About half go to bank branches
                                                                                • Figure 39: Credit card application channels, April 2016
                                                                              • Different approaches by different age groups
                                                                                • Figure 40: Selected credit card application channels, by gender and age, April 2016
                                                                              • Lack of promotional accuracy by card issuers
                                                                                • Figure 41: Selected credit card application channel, by monthly personal income, April 2016
                                                                                • Figure 41: Selected credit card application channel, by monthly personal income, April 2016 (continued)
                                                                            • Important Factors for Choosing Credit Card

                                                                              • Practical needs first
                                                                                • Figure 42: Factors for choosing credit card, April 2016
                                                                              • Different attitudes towards card fees
                                                                                • Figure 43: Factors for choosing credit cards, by age, percentage choosing ‘very important’, April 2016
                                                                              • Application channels as filters
                                                                                • Figure 44: Factors for choosing credit card, by application channels, mean average of importance, April 2016
                                                                            • Usage Habits and Attitudes towards Credit Cards

                                                                              • High familiarity with credit cards
                                                                                • Figure 45: Usage habits and attitudes towards credit cards, April 2016
                                                                              • Males are heavier credit card users in general
                                                                                • Figure 46: Usage habits and attitudes towards credit cards, by gender, April 2016
                                                                              • Carry out more salesmen promotions
                                                                                • Figure 47: Usage habit and attitude towards credit cards, by application channel, April 2016
                                                                            • Perceptions of Different Loan Providers

                                                                              • Peer-to-peer loans are gaining ground
                                                                                • Figure 48: Perception of different loan providers, April 2016
                                                                            • Meet the Mintropolitans

                                                                              • Rely on financial products more than personal connections
                                                                                • Figure 49: Usage of credit and loan products, by consumer classification, April 2016
                                                                              • Credit cards as a borrowing tool, rather than a payment tool …
                                                                                • Figure 50: Purpose of using credit cards, by consumer classification, April 2016
                                                                              • …so higher credit limit is important
                                                                                • Figure 51: Factors for choosing credit card, percentage choosing ‘very important’, by consumer classification, April 2016
                                                                            • Appendix – Market Size and Forecast

                                                                                • Figure 52: Total loans to households, 2011-21
                                                                            • Appendix – Market Segmentation

                                                                                • Figure 53: Balances outstanding on consumer loans, 2011-21
                                                                                • Figure 54: Balances outstanding on operation loans, 2011-21
                                                                            • Appendix – Methodology and Abbreviations

                                                                              • Methodology
                                                                                • Fan chart forecast
                                                                                  • Abbreviations

                                                                                  Companies Covered

                                                                                  To learn more about the companies covered in this report please contact us.

                                                                                  Credit and Loan Products - China - July 2016

                                                                                  £3,170.69 (Excl.Tax)