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Shuli Ren

China Just Killed Its $491 Billion Private Loan Market

By lowering the rate ceiling, policy makers are shutting down a key funding channel for small businesses.

Shop’s closed.

Shop’s closed.

Photographer: Kevin Frayer/Getty Images AsiaPac

Sometimes you've got to wonder what Beijing’s priorities are: helping small businesses weather the Covid-19 storm or taking victory laps. The message to the private banking world is unclear. 

Beijing has vowed to cut the cost of borrowing, and its latest target is private loans. China’s Supreme Court ordered interest rates on private lending, which includes microcredit, pawnshop loans, and online peer-to-peer lending, to be lowered as much as 10 percentage points. Previously, when disputes arose, China’s legal system would honor agreements with rates up to 24%. Now the ceiling is 15.4%, or four times the benchmark rate.