Original illustration by Alice Tse.

09:13 am | June 16, 2020

The Consumption Trap

Spurring consumer spending now lies at the heart of efforts by Chinese policymakers to tackle economic challenges. But while liberating the desire for consumption at first seemed to be good news, the darker side of borrowing to spend, particularly for China's youth, is now becoming more apparent.

By Fu Yi

In this year’s government work report at the 13th NPC session, Chinese premier Li Keqiang did not set a GDP growth target for 2020. Instead of that, he devoted an entire section to discussing “expanding domestic demand” and “boosting consumption.” The concrete measures for achieving this included “promoting the integration of online and offline consumption,” and “supporting the roll-out of e-commerce and express delivery services in rural areas to expand rural consumption.”

Ever since March, as China moved gradually out from the shadow of the Covid-19 epidemic, the Chinese propaganda apparatus has been actively promoting consumption as a political goal. Local party cadres have taken to social media platforms hoping to spur consumption of their regional products. Newsreaders on China Central Television have encouraged the idea that shopping is a path to happiness.

Key Points:

Chinese culture has traditionally adopted notions of frugality and saving money, which remained dominant before 2000. Consumption on credit was regarded as a Western concept unsuited to China's national conditions. Today, the government, banks, online retail companies and consumer finance companies all actively encourage Chinese to spend -- even with the idea that consumption contributes to GDP growth and can support the country.

Young people under 35 years of age in China, those born after 1985, have grown up in the relative material abundance of the era of reform and opening. Unlike their parents, who endured hardships, these young people are eager to consume, and a new industry based on high-interest consumer finance loans has emerged to cater to their desire to spend.

The pitfalls of the new consumption society, particularly for young people, are becoming clearer. Young Chinese consumers are increasingly becoming ensnared by various forms of consumer fraud, including high interest rates and fees, criminal methods to exert pressure over late payments, the sale of personal data and so on.

Consumerism has a short history in China. When China surpassed Japan 10 years ago to become the world's second-largest economy, manufacturing, exports, huge infrastructure projects and real estate were still the largest economic contributors. While economic growth was strong in GDP terms, there were deeper concerns about weak domestic consumption as a point of serious vulnerability in an otherwise strong picture.

The Chinese government responded by introducing policies to spur domestic consumption. Consumer finance pilot programs were begun the same year. Between 2013 and 2017, consumer finance grew dramatically, exposing at the same time serious gaps in existing laws and regulations – concerning, for example, protection of consumer data. Meanwhile, online shopping broke through the barriers of physical space, time and region, opening up a digital world of real-time consumption. China’s annual Singles Day shopping festival – also known as “Double 11” (so named for falling on November 11) – has logged spending records ever since the first event was held by the internet giant Alibaba in 2009. During Singles Day in 2019, turnover rocketed past one billion RMB within the first 14 seconds. By the time the clock reached 1 minute 26 seconds, turnover had shot past 10 billion yuan, or about 1.3 billion euros.

The generational characteristics of consumption patterns in China show clear differences with those in developed countries. Young people, and not wealthier older or middle-aged Chinese, have been the driving force of consumption. Young Chinese have less income to deposit and save, as their parents have done, but few compunctions about living as the so-called “moonlight clan,” or yueguangzu (月光族), a more recent Chinese term for those living from paycheck to paycheck but spending liberally. They are also much more willing to borrow money.

This article looks particularly at young people in China under 35 years of age, those born after 1985. All of the cases and people mentioned in this article were interviewed by the author in person, or their cases reported in the Chinese media. Owing to the “one child” policy, implemented in 1980, they were raised in single-child families or in extended families with few children. They grew up in the relative material abundance of the era of reform and opening, and unlike their parents rarely had to endure hunger or extremes of hard work.

There is also a need to distinguish between the consumption patterns of young Chinese living in larger urban areas and those living in smaller towns and cities, or in the countryside. Those living in third or even fourth-tier cities or towns also pursue fashion and lifestyle trends like their counterparts in major modern cities. But they encounter greater financial difficulties as they feed their consumer lifestyles.

Chinese culture has generally adopted notions of frugality and saving money. Before 2000, it was fair to say that mainstream values in China predisposed Chinese against consuming on credit as was so common among their American contemporaries. The idea circulated that consumption on credit, even if it could be considered an “advanced” Western concept, was not suited to China’s national conditions. With a massive population and limited resources, conspicuous consumption seemed unattainable.

Screenshots from the evening news program on China’s CCTV in March, April, and May. The captions read, from left to right: “Lately we have held back on ‘buying, buying, buying’ / nothing can hold us back from placing orders now / [consumption] makes people happy.”

Nevertheless, within just a few years these proved to be antiquated ideas, as consumer loans grew at a feverish pace and Chinese began consuming conspicuously. These days, everyone is in the game. Governments, banks, merchants and consumer finance companies – all are actively encouraging people to spend, even with the idea that consumption contributes to GDP growth, and that it can save the country. To consume is sensible, fashionable, even patriotic.

These days, everyone is in the game. . . . To consume is sensible, fashionable, even patriotic.

The behavior of young Chinese consumers today is far more diverse than many might imagine, running across a broad spectrum. There is typical conspicuous consumption, image-conscious consumption, status-related consumption based on social position, consumption as an expression of personal style, consumption as release, consumption as addictive dependence, and so on. Understanding each of these patterns of consumption requires analyzing them in terms of a multitude of factors, including economic change, commercial strategies, changing policies, individual needs and desires, and changes in mainstream consumer consciousness.

A New World of Abundance

China’s geographical and commercial landscapes have been transformed over the past 30 years. Its cities have swelled, devouring the countryside around them. Skyscrapers and high-rises have sprouted up everywhere. In every city, shopping centers have become landmarks to newfound prosperity – grandiose and buzzing with activity, from shopping and entertainment to leisure and other services. The rollout of signature Wanda Plaza shopping malls, high-rise commercial developments operated by the now multinational Wanda Group, have brought a new level of luxury in most cities.

In China, the developments seen in Western countries over two or three centuries have been compressed into the space of just 30 years. And now, already, the shine has come off China’s shopping malls, all of which show signs of aging and fading in the face of the next revolution: online consumption. The internet and the mobile phone have now become the primary battlefield as merchants try to entice Chinese consumers.

In 2003, Alibaba opened up its Taobao customer-to-customer online shopping platform (similar to eBay). This was closely followed by a chain of competitors, including JD.com, VIPshop, Pin Duo Duo, the NetEase service Yeation and others. Alibaba then developed Tmall (formerly Taobao Mall), a business-to-consumer platform (more like Amazon), as well as other consumer platforms like Haitao, which offers links with foreign retail platforms, and Xianyu, specializing in second-hand online sales.

Fierce competition between platforms has driven prices down and resulted in better and better services. In line with these developments, the express delivery industry has expanded to reach almost every corner of China, with full coverage of rural areas and even of remote mountainous regions. JD.com has developed its own express delivery system, and parcels can arrive on the same day or next day with reliability. In this way online consumption in China has increasingly wiped away distinctions between urban and rural.

Time has also been liberated from its previous bounds. Orders can be placed 24 hours a day and in the midst of the other routines of life – on the way to and from work, between waiting times, during meals, before bed, or before going in for surgery. The "immediate return" of the online shopping experience means a level of intimacy in terms of feedback to consumer demands that is unprecedented. Since the peak time for placing orders happens around midnight, many online stores now provide consumers with live chat services late into the night.

Data shows that young women are the main force in online shopping, and consumption of skin care and beauty products has grown most dramatically, doubling between 2015 and 2017 alone. Sales continued to climb during Singles Day in 2019. These women do not come for the wealthiest segment of the population, but rather from low and middle-income backgrounds.

May, a dedicated online consumer, has been purchasing makeup online for seven years. She tends not to bargain hunt, looking for products under 100 yuan, or 13 euros, but goes instead for products at the higher end – Yves Saint Laurent lipstick, eyeshadow from Chanel and Dior. Her preference is for retro and gothic styles. May, 25, says she decided to live a “moonlight clan” lifestyle, consuming conspicuously, after she decided that she would not get married or have children or pets. But this can also stir up feelings of guilt in a society that emphasizes the importance of the family. Was she being unfilial to her parents by deciding against a more traditional lifestyle?

Young people like May, a white-collar worker in a first-tier city, have been the driving force of growing consumption in China. But consumption growth from this segment of the population has now hit a bottleneck as urban rents and property prices have risen, cutting deep into their incomes. As a result, China’s consumer market, particularly in first-tier cities, has sagged, and consumption in third, fourth and fifth-tier cities has begun to close the gap. The group commonly referred to in Chinese as the “township youth,” those from urbanizing small towns, raised eyebrows at Spring Festival time in 2019 as they rushed to pay exorbitant prices for fresh imported cherries, prized during the holiday season. There were even widespread discussions about “cherry freedom,” white collar workers in first-tier cities bemoaning the fact that despite their high incomes they were unable to purchase delicacies that their peers in smaller cities bought with seeming ease.

Followed by strong consumption of luxury goods, it is a shocking prospect of a "small town market." In a recent study called “The Disappearing Barriers,” the internet giant Tencent noted that young people in small towns in China are the new driving force in consumption because they have fewer financial pressures and more time for online activity, including shopping, playing games and watching videos. They tend to actively follow fashion trends, enter marriage and family life earlier, invest in education, and so on. Moreover, life away from the first-tier cities is still more focused on closer relationships and familiarity with those around you, which translates into greater conspicuous consumption as a means of demonstrating social status and earning social capital.

In the mobile payment scenario, the post-90s generation is the main force driving consumption – and also the main force in borrowing. The zeal for online shopping among those in China under the age of 25 is even imperfectly understood by their parents. But imagine this very real scenario: A strictly managed secondary boarding school in a fifth-tier city, where students are not allowed to have mobile phones in class, but where somehow the students still manage to continue their online shopping [at break times]. Their parcels are sent to shops in the vicinity of the school, usually near the school gate, and can be picked for just one yuan, charged by the shop as a storage fee.

Online shopping parcels are packed under many dormitory bunk beds in China’s boarding schools. In all likelihood, these students rushed to turn the cash they received from their parents, or from relatives during the New Year, into digital currency on platforms like Alipay and WeChat. What their parents may not understand is that this digital conversion has nothing to do with savings, but rather is all about the compulsion to shop online.

The zeal for online shopping among those in China under the age of 25 is even imperfectly understood by their parents.

When shopping becomes daily routine, consumer demand and desire are constantly being generated. This kind of daily routine shapes not only buying habits, attracting eyes and swiping fingertips, but also creates psychological expectations, payment habits, expectations of the receipt of parcels, the thrill of unpacking, and so on. And this shapes at the same time the behavioral patterns and values of young people.

One result of the formation of this chain of expectation is varying degrees of consumer addiction.

Today’s online shopping platforms have essentially taken the consumer catalogue of the past and made it far more graphic and interactive. Young people today are no longer simply choosing goods – the goods are coming to them and at them, seeking to attract and please them. But it is not just about the goods. Consumption itself is the source of enjoyment at a basic level. In the past few years, livestream shopping has become a popular way in China of integrating shopping and shopping guides with various forms of entertainment, star chasing, games and education. The act of consuming is no longer limited to the act of shopping.

Looking at consumption by gender, women in China tend to spend money on their bodies (makeup, accessories, clothing and so on), while men tend to spend money on games and on observing attractive women (including bestowing gifts to beautiful online idols in livestreaming “rooms”).

One young consumer, identified as “Mr. L,” was conservative in his online and offline consumption before he purchased his first gift for an online singer through Momo, a livestreaming platform. He rarely bought clothes, ate out, or purchased videogame equipment or other products – his total annual discretionary spending coming to just two or three thousand yuan, or about 300 euro. As a result, Mr. L. also had substantial savings. But three years ago, on a friend's recommendation, he began spending his spare time following an online singer/blogger hosting livestreams on Momo and other platforms such as Yingke, Douyu and Qi Qi. As he chatted and interacted with the livestream host, he expressed his interest and gratitude by gifting her with gifts costing the equivalent of several euro, to more expensive offerings – the host becoming sweeter and more attentive as the gifts became more generous. Before long, L. had spent tens of thousands of yuan, all of his savings, and eventually started borrowing in order to feed his online habits.

China’s Roaring Age

It is now a fact that many young people in China do not save money, and they spend liberally on credit. This fact is shocking for many Chinese once they are forced to face it. Chinese parents often feel helpless, having assumed that their children will save money as they have been taught. In fact, the spending habits of the younger generation are also a silent protest against the older generation, as though to say: “We are not like you.” Young people feel that they are living in the good times, and they don’t accept that they should be held back and restrained like their parents.

For Chinese young people, shopping is less about the goods themselves than about the pleasure of ordering and receiving. Why should you need one hundred lipsticks, or two hundred pairs of shoes, if you have only one head and two feet? It is about the sense of fulfillment that comes with ownership. And Chinese shopaholics today are turning their homes into storage places for their online fantasies.

Becky, a well-known fashion blogger, purchased a 200-square-meter luxury apartment, most of which is now dedicated to storing and showcasing her clothes, shoes and hats. Her "palace," as she has called it, quickly gained popularity online and defined a new level of consumer aspiration for young Chinese. In China, where housing prices are sky high, having a cloakroom has become an important symbol of luxury. Becky, as a super guru of buying and more buying, has called on young people to “buy the best they possibly can.”

Screenshot of an online video by Chinese fashion blogger “Becky.”

The problem is that many people do not have the means to buy the best, but at the same time feel compelled. They can also feel omnipotent, overestimating their ability to buy, as advertising reassures them that nothing is impossible, that whatever they want is within reach.

The current young generation of Chinese in many ways resembles the American generation of the so-called “Roaring Twenties,” a period of unprecedented economic growth and prosperity, when freewheeling hedonism was a form or rebellion against frugal Victorian values. Young Chinese spend freely, enjoy themselves, and depart from their parents' values.

This generational divide is a product of the times. Over the past 30 years, China's urbanization rate has surpassed 65 percent. Household appliances and automobiles have become popular, the Internet has developed rapidly, and the entertainment and service industries have soared from zero. In a society that is rapidly accumulating wealth, even children from poor families are motivated by material desires. Material possessions are the hard currency of society, and scarcity can mean isolation and being left behind.

May, the 25 year-old online consumer who prefers eyeshadow from Chanel and Dior, graduated from a prestigious university and earns a high salary. But by her own admission she never saves money. Outside of work and study, she spends her time shopping, photographing herself and her things, and posting to social media. This, she says, is her main way of combatting depression – something in which she needs to invest several hours a day.

Aside from psychological well-being, May is convinced that she gains socially from her buying experiences. She has met like-minded friends and shared shopping experiences with them, drawing on her growing knowledge and sensibility as a consumer. For Mr. L too, online consumption has become an important part of his social life. He was initially dejected at having exhausted his savings on livestream platforms, but he refuses to consider this a waste of money. Online, he can indulge his interest in his favorite hosts in livestream rooms and feel connected, maintaining this connection through gifts to the host facilitated by Alipay or WeChat Pay – which doesn’t feel, he says, like real spending. Moreover, there is no risk of rejection or miscommunication.

Traditionally, leisure has meant that an individual breaks away from the routine of work and spends time with relatives and friends, or on personal hobbies and interests. In the consumer society, leisure equals time spent on material consumption. In this sense, true leisure time isn’t possible without consumption.

Young people living in China’s age of material abundance have learned to satisfy their deepest needs through things. In May’s case, consumption has become a means of psychological treatment. In Mr. L’s case, it is a means of staving off loneliness.

In the consumer society, leisure equals time spent on material consumption. In this sense, true leisure time isn’t possible without consumption.

For many, consumption becomes a daily routine that combines and monopolizes work and leisure. It is both a benefit and a vexing challenge afforded by the times. There is benefit in the sense that the extreme abundance of material goods has brought Chinese a new wealth of choices. But far from providing the liberation some might have hoped for, consumption has led many Chinese to become trapped. To understand how this has happened, we need to understand the operation of the consumer loan industry in China.

The Hard Business of Easy Money

On May 28, 2019, police in the city of Zhuhai, in China’s southern Guangdong province, found that a woman identified in the news as Ms. Chen had committed suicide by burning charcoal inside her apartment. The woman’s mother discovered as she dealt with her daughter’s affairs that she had racked up 878,000 yuan in credit card debt, or about 114,000 euro, across 14 different credit cards, having exceeded her combined available credit line of 770,000 yuan. Her monthly income had been just 3,000 yuan per month, or about 390 euro.

Chen’s mother had not been aware at all that her daughter was deeply in debt, and she couldn’t fathom how she could have such a huge credit card balance. She scarcely knew what a credit card was.

Credit card spending is in fact a very new phenomenon in China. Following the start of China’s reform and opening policy in 1979, it was not until 1985 that the Bank of China issued the country’s first credit card, and the first RMB debit card was issued in China in August 1986. Chinese of that generation had a survival mentality, thinking the most important thing was to meet one’s basic needs and then to save for the unexpected.

Finally, in March 2002, China UnionPay, an association for China's banking card industry under the central bank, was founded as the country’s only interbank network linking bank ATMs nationwide. Credit cards were gradually popularized from that point on. Ms. Chen, with 14 credit cards to her name, was one of many victims of credit card abuse, and the rapidly growing phenomenon of so-called “credit card slavery.”

The launch in 2004 of Alipay brought a payment revolution over the period of less than a decade. In 2014, WeChat, a multi-purpose social media app, also introduced “Lucky Money,” a service allowing WeChat users to exchange money with their contacts. By 2016, barcode payment had become a normalized form of payment, turning the mobile phone into a virtual wallet.

The latest payment trend in 2019 was “face scan payment,” linking payment with facial recognition technology. These days, shops of all sizes in China accept barcode payment, and even most street stalls are cashless. Payment methods have changed the way people think about money. In a cashless era, money is equal to digits.

Capitalizing on the possibilities opened up by credit cards, online loans and convenient payment methods, consumer finance loans emerged a decade ago to lead yet another wave of consumption. The concept of consumer finance first entered China in July 2009, as the China Banking Regulatory Commission (CBRC) approved Beijing, Shanghai, Tianjin and Chengdu as the first pilot cities for consumer finance.

Subsequently, PPF Group, the Czech financial and investment group, established Home Credit BV, which received a license from the CBRC in 2010 to become the first and only fully foreign-funded consumer finance lender in China. Within several years, a number of players had entered the market, including Beijing-based Qufenqi (now called Qudian), Shenzhen-based Fenqile, the “Installment Purchase” program operated by the online retail company Tmall, and “JD Baitiao,” a consumer finance program by JD.com – all offering a range of small loans and other financial services, both online and offline.

The ecology of consumer finance loans in China is very different from that of developed countries. First of all, while Western countries mostly have a long history of established system of personal credit reporting and scoring, China just started in 1999 to develop methods for collecting personal credit history data. The development is dominated by the government and not mature, and lack of trust is a serious problem in today’s Chinese society. Secondly, those groups having the most demand for consumer finance services – for example, migrant workers and young people under the age of 25 – have difficulty qualifying formally for consumer loans with banks.

Screenshot of Home Credit website in China. The advertisement reads: “Home Credit, letting me meet the better me sooner.”

A survey report from the loan information platform "Rong360," which looked at roughly 300,000 bank loan applicants across the China, found that 31 percent of the applicants were under the age of 25. Only 34 percent of these applicants actually met the necessary loan conditions. Additionally, more than 26 percent of these applicants were unable to obtain credit cards from banks because they had insufficient income.

For consumer finance providers, these applicants are the main source of customers, which inevitably drives up the risks and costs of loans. As high costs are passed on to consumer finance consumers, these loans are often twice as expensive as bank loans. According to an in-depth report of the Chinese newspaper Southern Weekend, Home Credit's annual percentage rate, for example, can be as high as 42 percent, despite national regulations stipulating that interest rates cannot exceed 24 percent. This has been a source of widespread dissatisfaction among consumers.

Before obtaining its legal business license in China, Home Credit had extensive experience in the consumer finance loan business in the Czech Republic, India and other countries. But the company realized that the market for consumer finance loans in China was focused on different consumer demands. While Europeans tended to borrow for the purchase of major household appliances or travel, Chinese consumers, mostly young migrant workers in larger cities, most urgently demanded loans for the purchase of mobile phones. Home Credit responded by dispatching salespeople to mobile phone retailers, offering loans to customers purchasing new phones. Mobile phone retailers also stood to gain, as customers with credit were more likely to buy more expensive, high-end phones.

With a personal ID card and bank card customers could obtain a Home Credit loan, generally approved in as quickly as an hour, or within 24 hours. The commission and interest on installment payments was not particularly high. Home Credit was playing the long game, understanding that customers purchasing mobile phones could become a broader customer base for other consumer finance loans. Repeat customers account for 68 percent of Home Credit's new loans.

Many of the customers interviewed by Southern Weekend, trusting in the lenders fast approval and past record of their previous experience with initial low-interest products, signed large consumer credit loans without full awareness of the interest terms. In most cases, these repeat customers are approved within an hour, or even within minutes. Salespeople from Home Credit have suggested interest rates are the same as those charged by banks, but in fact they are generally 2-5 times higher – and customers tend to realize the risks of high interest and high fees only when time comes to repay the loans. Home Credit also has a loan clause allowing customers to withdraw within 15 days, but salespeople often avoid mentioning this clause to customers.

While Europeans tended to borrow for the purchase of major household appliances or travel, Chinese consumers, mostly young migrant workers in larger cities, most urgently demanded loans for the purchase of mobile phones.

Following its initial success making inroads into the mobile phone market, Home Credit turned to university campuses. University students were a target group with huge future consumption potential, and sensitive to how they are perceived. Home Credit was the first in China to move into the market for campus loans, offered at chillingly high interest rates. The result of this approach has been rising numbers of payment defaults, along with rising customer complaints. Because Home Credit insists on not keeping debts on its books, it has a huge collections department and goes to great lengths to collect the money it loans out. This has often resulted in the intimidation of borrowers, and repeated accusations of abuse.

While Home Credit's strategy in China has been steady promotion of its loan products and insistence on collection, the micro lender Qudian, established in March 2013, has taken a different approach. It has relied on the recruitment of young and eager college students to push its micro loans on campus, incentivizing them by offering them fees for signing new customers. After a brief three-day training period, college students moonlighting as Qudian promoters can earn 10 yuan for each student they convince to sign up a contract, and 50 yuan for each new loan customer after the registration as user of the service. Promoters who work hard enough can get as many as 100 signatures a day, earning a monthly income of around 10,000 yuan – a substantial sum for a college student.

With a highly motivated sales and promotion force, further incentivized by the offer of commissions and share bonusses for reaching sales goals, the company has expanded rapidly. But the problem of overdue loans cropped up quickly as students were unable to repay. According to the Rong360 survey, nearly 47.2 percent of loan customers born after 1990 have been overdue on loans. Regardless of its high rate of overdue loans, Qudian's financial statements have remained attractive to venture capital, which is most concerned to see that new loan registrations are on the rise. In 2017, Qudian listed on the New York Stock Exchange, raising 900 million dollars, the biggest US listing to date by a Chinese fintech company.

With its billions in high-interest loans to Chinese college students, Qudian has been a center of controversy for its often intimidating collection tactics. But investors have continued to inject capital in Qudian and other lenders because they see only the huge potential for growth. The total consumer loan balance in China grew 20 percent in 2017, and 30 percent in 2018. Such rapid growth suggests that consumer finance companies have been successful in feeding Chinese appetites for consumption and encouraging consumer debt. And if consumer financing in China is to catch up with developed countries, the numbers would seem to suggest there is still plenty of room for growth.

But the pitfalls of consumer finance, particularly for the young people most eager to take advantage of China’s new consumer society, are becoming clearer.

Dealing with the Devil

Last year, China Central Television’s consumer rights program, “315 Consumer Days,” aired an investigation into the now widely practiced fraud of so-called "714 Gaopao,” which refers to the provision of high-interest internet loans with terms of just 7-14 days. Interest for 7 days can run as high as 30 percent, and an additional “handling fee” of 20-30 percent is often charged on the loan principle. Overdue payments on such loans also incur high late fees. The opportunities for fraud in providing “714 Gaopao” loans are virtually endless, and providers have followed the example set by consumer finance companies – using similar marketing models, copying their contract formats, and so on. The most basic change in contract language is to set weekly rather than annual interest rates.

Xiaowan, a junior high school student I have interviewed, was one consumer profiled by the CCTV program who fell prey to the “714 Gaopao” fraud. She borrowed 3,000 yuan to purchase a new mobile phone, and with frightening speed this small loan had become a 50,000 yuan balance. Xiaowan could not possibly hope to pay the loan back on her own, and her parents did low-income labor in the countryside. Her original thinking was simple. With her living expenses at 800 yuan per month, she couldn’t afford to save money, but she desperately needed a new mobile phone to remain in touch for internships and potential jobs. When she saw the advertisements popping up on the internet for short-term loans at low interest rates and rapid processing, she came to the conclusion that banks were now eager to lend and that borrowing was easy.

Screenshot of coverage by the Chinese news portal Sohu.com of the "714 Gaopao" investigative special by China Central Television’s consumer rights program “315 Consumer Days.”

Choosing one of the online companies, Xiaowan arranged to meet a salesperson. The company’s small office was packed with people applying for loans. She provided them with a copy of her identification card and household register booklet, and also authorized the company to access her mobile phone contacts. The salesman quickly completed the application procedure. He then uploaded several apps to Xiaowan’s phone, showing her how these would be used to repay her loan in the future. There were five apps in all, and several hundred yuan would have to be repaid through each. When the process was completed, Xiaowan received just 2,100 yuan on her 3,000 yuan loan – 900 being immediately deducted as a handling fee.

The repayments demanded of her from the apps quickly exceeded Xiaowan’s capacity to repay them. When payments became overdue, she didn't dare tell her parents. Meanwhile, a sales clerk from the loan company exerted pressure, telling her that she could defer her payments but would need to provide nude images of herself as collateral. Seeing no other way out, she held her ID card to her bare chest and snapped three selfies that she then uploaded to the company through one of the apps.

By this point, however, the overdue interest on Xiaowan’s small loan had already far exceeded the original loan principle. After just three months, it had reached more than 30,000 yuan. Xiao desperately sought a way out by downloading a new app and borrowing new debt to pay off the first loan. But after four months, her total debt had now reached 50,000 yuan, the equivalent of several years of labor for her poor farming parents.

The situation now impossible, her only thought was to block all of the phone numbers harassing her for repayment. The company responded by sending the nude photos of Xiaowan to her parents, friends and classmates, who soon started receiving calls on their phones demanding repayment of the loan. It was only then Xiaowan realized that her loan contract had authorized the company to access her contacts and recent call information. When she finally contacted the police, the debt collectors seemed completely unphased. They continued to press her to find ways to repay her loan, suggesting even that she engage in “high-paying work," shorthand for prostitution. Angry, humiliated and terrified to even go out in public, she nearly fell apart.

In 2016, a package of photo files was circulated online containing the naked images of more than 1,000 young women, including their identification and personal contact information. Sold for several hundred yuan per download, the package was a ploy by an illegal lending company to profit from personal information gathered through sales and debt collection for short-term loans like Xiaowan’s. Such compromising information is likely to be sold even if borrowers repay their loans. In some cases, loan contracts have even included a check-box asking applicants to indicate their willingness to “pay” with their bodies, which generally refers to accepting sex work or becoming a mistress to pay off debts. Many of these loan agencies are closely linked with China’s shadow pornography industry.

Where there is demand among young people for mobile phone purchases, vocational training, cosmetic surgery and other goods and services, combined with poor oversight and regulation, online snares appear to exploit this demand. In another case, scammer established a recruitment company that attracted young candidates with job advertisements, then convinced them with promises of scholarships to enter into costly education loans for skills development they said was essential to employment.

As the investigative segment aired by CCTV showed, these high-interest “naked loans” (裸贷) and other scams are inextricably linked to legitimate consumer finance companies. The investigation exposed hundreds of financial institutions suspected of "714 Gaopao" scams, including the customized financing provider Rong360, and more than a hundred other companies such as Easy Borrowing and Quickloan.

With their high interest rates and fees, opaque handling of private information and exploitative approaches to handling overdue payments, consumer finance companies in China have encouraged loan dependency. Faced with high-pressure collections, many borrowers have begun to borrow new debt simply to pay off old debt. According to the Rong360 survey, more than 64 percent of the post-90s borrowers have loans on four or more platforms. Nearly 10 percent have borrowed on more than 20 platforms. Meanwhile, 29.6 percent of post-90s borrowers cited repayment of overdue loans as their reason for seeking new loans. Afraid of malicious collection practices, many young borrowers desperately seek new loans to service existing ones, leading to a vicious cycle of fraud and loan dependency.

With their high interest rates and fees, opaque handling of private information and exploitative approaches to handling overdue payments, consumer finance companies in China have encouraged loan dependency.

This predatory loan environment has been encouraged by an extreme lack of personal data protection. Beyond failing to adequately ensure protection of consumer data, internet finance companies often profit from selling the data. Related concerns swarmed around Qudian in 2019 as the company experienced rapid revenue growth on the back of its so-called “open platform”, meaning to share user information with its partner companies and charge commissions.

The online consumer loan industry in China has become a black hole of private data. But an even bigger black hole is the impact consumerism has had on many Chinese youth living in a society of high wealth disparity.

Endless choices are available for downloadable mobile loan apps in Chinese.

The Consumption Trap

A New World of Abundance

China’s Roaring Age

The Hard Business of Easy Money

Dealing with the Devil

The “Black Hole” of the Desire Society