[Correspondent Column] What China Fears the Most

[Asia Economy Beijing=Special Correspondent Jo Young-shin] I received a phone call in early September. It was an unknown number. A female voice was heard. I couldn't understand what she was saying. I just hung up. I thought it was a wrong call.

The next day, the phone rang again. The same female voice was heard. I just hung up. This receiving and hanging up repeated for 2 to 3 days. I started to get annoyed. So I listened carefully. It was a demand to repay a 300 yuan (about 50,000 won) loan. I instinctively understood. Someone who took a small loan through Weixin (WeChat Pay) did not repay the money, and I was using the phone number that person had used.

A few days later, the full-scale debt collection began. The phone rang once in the morning and once in the afternoon. I had to repeat twice a day for over a month, "My name is Jo Young-shin. I am Korean. I do not know who she is. I have never taken a small loan."

Just as I was about to escape the stress of debt collection, overseas media made a fuss over the Alibaba Group’s subsidiary Ant Group’s initial public offering (IPO). It was reported that Ant Group was planning a simultaneous listing on the Shanghai and Hong Kong stock exchanges, raising $34 billion (about 38.42 trillion won), which would be the largest in human history.

Ant Group operates Zhifubao (Alipay), China’s number one mobile payment platform. Fintech (finance + technology) using information and communication technology (ICT) such as big data is Ant Group’s main source of income.

Having been harassed for over a month, I became curious about Alipay’s loan delinquency rate. I searched here and there but could not find any delinquency rate statistics.

China is a country that skipped the credit society. From a cash society to a credit society, and then a credit society to a cashless society, China entered a cashless society directly without going through a credit society. The concept of credit, that borrowed money, i.e., debt, must be repaid no matter what, is inevitably lacking. Instead, China has developed a prepaid (先拂) culture, which also often emerges as a social problem of 'eating and running.'

Two days before Ant Group’s listing, the Chinese leadership indefinitely postponed the listing. Articles flooded suggesting that the listing was canceled because Jack Ma, Alibaba’s founder and Ant Group’s largest shareholder, arrogantly acted in front of the Chinese leadership.

Did the Chinese leadership really cut off the goose that lays golden eggs just to discipline Jack Ma?

Alipay has over 900 million users (most of whom also use WeChat Pay). Suppose 900 million people each borrowed 100 yuan (about 17,000 won). The total loan amount would be 90 billion yuan. Assuming an annual interest rate of 7% (applying a daily interest rate of 0.02?0.07%), the interest income alone would exceed 6.3 billion yuan. Conversely, if the delinquency rate soars, losses would be incalculable. This is why Chinese financial authorities demanded Ant Group increase its reserve requirement ratio from 5% to 30%.

South Korea experienced a financial system collapse in 2003 due to a credit card crisis. Nearly 20% of the economically active population was stigmatized as credit delinquents to enter the credit society.

A Chinese university professor I met in private said that China entered the digital currency society before the concept of credit was formed. He worried that the credit concept could not keep up with the speed of technological development such as IT, which could cause really big problems later.

Amid the US-China conflict, what the Chinese leadership fears most is instability in the financial (capital) market. Even if other fields are unknown, finance cannot compete with the US. If the financial market collapses, China will have to kneel helplessly before the US. The 1.4 billion people will become uncontrollable.