{"text":[[{"start":8.39,"text":"This article only represents the author's own views."}],[{"start":12.57,"text":"Beijing has once again reminded investors of the type of sudden new regulation it often doles out without warning, which can quickly change the fortunes of financial companies for the worse."}],[{"start":25.97,"text":"Last Tuesday, China’s Ministry of Public Security and the National Financial Regulatory Administration (NFRA) signaled the start of a new phase in their war on the financial \"black and gray\" markets. The official rhetoric targets \"predatory\" brokers and other underworld financial firms that do things like tricking grandmothers into guaranteeing loans for strangers. But legitimate consumer loan platforms like Yiren Digital Ltd. (YRD.US) and Qfin Holdings Inc. (QFIN.US, 3660.HK) are also ending up as collateral damage in the latest dragnet."}],[{"start":67.11,"text":"At the heart of the matter is a 24% cap on interest rates. While China’s Supreme People’s Court has long held that rates above that level are legally unprotected, the limit was previously just a judicial guideline. But that changed last October, when it became a hard ceiling, above which anything was illegal. Now, under a new enforcement regime declared last week, authorities are shifting from administrative fines to aggressive criminal prosecutions, targeting lenders who exceed the cap as criminals rather than simply regulatory violators."}],[{"start":103.89,"text":"For years, platforms like Qifu and Yiren Digital operated in a lucrative \"gray\" zone by charging interest rates that often effectively drifted toward 36% when various fees were included. They could get away with this because borrowers technically volunteered to pay those charges under their contracts. But after the October rule change, regulators have stripped away these extra interest costs disguised as fees, treating total borrowing costs that exceed 24%, including any fees, as illegal. By Aug. 1, all platforms must fully disclose every facilitation fee."}],[{"start":145.92000000000002,"text":"Within the realm of mainstream private lenders, Yiren Digital and Qfin are among those getting hit the hardest. Both companies saw their revenue fall year-on-year in the fourth quarter of last year. What’s more, Yiren plunged into the red. Qfin fared better by remaining in the black, though even in that case its net profit nearly halved. And both companies were summoned by regulators last month due to a high volume of customer complaints about them."}],[{"start":175.96,"text":"Changing mood"}],[{"start":178.15,"text":"The mood was quite upbeat for the two companies as recently as the first half of last year as they carved out a nice niche within the financial sector by targeting consumers who need quick, short-term loans. That strategic focus resulted in nice growth in both their revenue and net profits in the first six months of the year. But then the regulatory bombshell dropped."}],[{"start":204.53,"text":"“For the credit solutions business, 2025 was a unique year,” Yiren Digital CFO Ka Hui said on the company’s latest earnings call last month. “We began with a very good growth momentum, seeing a 43% growth in loan facilitation volume in the first half of 2025. However, we subsequently faced a downward trend in the credit cycle alongside with regulatory changes.”"}],[{"start":233.53,"text":"Anyone who follows China’s private financial sector is probably feeling a sense of déjà vu, as the latest move extends a prolonged crackdown on an original group of peer-to-peer (P2P) lenders that sprung up in the early 2010s. That campaign began in 2016 and all but killed most of those lenders, forcing companies that remained to change their business models, most often by becoming loan facilitators rather than direct lenders. Yiren Digital, formerly known as Yirendai, is one of the companies that made the transition, and was recognized by a trade magazine as the best lending platform in China in 2017."}],[{"start":275.22,"text":"Fine line"}],[{"start":276.97,"text":"Loan facilitation was supposed to be a safe evolution for P2P lenders. But the remaining companies are still very much at the mercy of regulators – as the quick, sharp reversal of the fortunes of Yiren Digital and Qfin late last year shows."}],[{"start":294.42,"text":"All this is happening as Beijing tries to walk a fine line between reinvigorating a slowing economy, which inevitably involves loan-financed spending, and preventing consumers from collapsing under the weight of excessive debt burdens. It’s a delicate act. While the government wants consumers to spend more to boost “high-quality\" development, it doesn’t want high-interest loans to become prevalent either."}],[{"start":320.62,"text":"Life doesn’t look set to get any easier for consumer loan companies either. The NFRA is looking to ultimately tie comprehensive borrowing costs, including all associated fees, to four times the one-year loan prime rate, which currently stands at 3%, by the end of 2027. So, if the benchmark stays at that level, the interest rate ceiling will effectively be slashed to 12% – or just half the current 24% level."}],[{"start":351.5,"text":"As their current loan facilitation business comes under pressure, both Yiren Digital and Qfin are pivoting to new areas. Yiren Digital is rebranding itself as an \"AI-native\" company, using DeepSeek to commercialize its proprietary artificial intelligence (AI) tools. Qifu is doubling down on its software-as-a-service (SaaS) platform for banks."}],[{"start":377.18,"text":"Yiren Digital’s New York-listed shares are down more than 50% in the past month, falling to a highly depressed price-to-sales (P/S) ratio of just 0.17. Qfin’s stock hasn’t done quite as poorly but is still down 10% over the last month. Its P/S ratio now stands at 0.8, which is better than Yiren Digital’s but hardly inspirational."}],[{"start":405.47,"text":"Those poor valuations probably reflect investors’ concerns about the companies’ perennial vulnerability to regulatory risks in China. As it becomes tougher to sustain profitable loan facilitation services, pressure will only grow on these companies to find new revenue sources. The trouble is that they, and their peers, all are likely looking at the same rising areas like AI and software services, as well as growth opportunities abroad."}],[{"start":436.22,"text":"Any pivot from the heavily regulated financial sector looks necessary as the business of traditional lending gets increasingly difficult. But such efforts also look like desperate attempts to avoid becoming the next casualties of China’s love-hate relationship with its private lending sector."}],[{"start":466.76000000000005,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1775702009_1822.mp3"}