China wants to boost loans to small businesses

China’s push to encourage lending to smaller companies has created a business opportunity for large financial technology companies.

As Beijing struggles to balance a crackdown on high debt levels with maintaining growth, President Xi Jinping and Premier Li Keqiang have both publicly announced support for privately-run companies. The central bank has also freed up cash for lending in recent months, and eased rules to help small businesses obtain funds more easily.

Still, the business environment — particularly in financing — still favors state-owned companies, despite the fact that the private sector contributes to the majority of job creation and economic growth in the country.

But there’s money to be made for those willing to lend to smaller businesses, particularly if some of the risks can be mitigated. According to Tencent-backed online lender WeBank, roughly 80 percent of the nearly 90 million small and micro-sized enterprises in China don’t have a credit with a bank.

That’s where fintech can play a greater role.

Thanks to their close ties to Chinese technology giants, Alibaba-backed online lender MYbank and Tencent-backed WeBank can use hordes of payment information or social network data to ascertain the ability of a business to pay back its loans. That’s the kind of basic credit information many companies in the private sector have been unable to provide, and partly why traditional banks prefer to lend to large, state-owned enterprises instead.

Micro and small-sized enterprises do not get equal financial support relative to their contribution to China’s economic growth