China's cross-border e-commerce merchants are largely underfunded despite Beijing's push to boost the industry, according to Hong Kong-based lending start-up Qupital, which is hoping that its access to the city's established capital market provides an answer.
Founded in 2016, Qupital offers offshore US dollar loans to Chinese merchants selling their products on overseas marketplaces including Amazon.com, eBay and Lazada.
Thanks to the rapid growth of cross-border e-commerce, Hong Kong's less stringent online lending rules than the mainland and its mature financial market, Qupital's credit offered has grown 200 per cent so far this year against the same period a year ago, co-founder and chief executive Winston Wong told the South China Morning Post in an interview.
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Wong said the credit his firm has offered, has been at an "average of 90 days with an annualised interest rate of between 6 and 18 per cent".
In 2020 China's cross-border e-commerce reached 1.69 trillion yuan (US$265 billion), a 31.1 per cent increase from the previous year, China Customs spokesman Li Kuiwen said at a press conference in January this year. Exports accounted for 1.12 trillion yuan, growth of 40.1 per cent from 2019, according to Li.
Beijing also sees cross-border e-commerce as a growth driver for trade, with developing cross-border e-commerce mentioned in the country's 14th five-year plan. The Ministry of Commerce's 14th five-year plan for e-commerce development also proposed a range of measures to boost cross-border e-commerce, including improving inventory, logistics, payment and data infrastructures, and setting up more pilot zones.
But mainland merchants in the cross-border e-commerce industry are still underserved in the traditional financing market, as regulations on online lending continue to tighten amid China's deleveraging drive, according to Wong.
Addressing concerns about systemic risks, in February, the China Banking and Insurance Regulatory Commission (CBIRC) released a new set of rules that require all online lending platforms to contribute 30 per cent of the loans they offer jointly with banks. At the moment, online lenders contribute about 20 to 40 yuan for every 1,000 yuan of loans, while banks assume most of the credit risks.
Hong Kong is not subject to such rules, Wong said, allowing them to easily finance the merchants, who have all set up entities in Hong Kong for export purposes. The merchants would receive loans in US dollars, and would use their US dollar income from overseas sales to repay Qupital's loans, he said.
The firm also benefits from Hong Kong's well established and mature financial market, where they can attract capital from family offices and other institutional investors, at a lower funding cost than in the mainland, Wong said.
Earlier this month, Qupital raised US$150 million in series B funding from investors including the Greater Bay Area Homeland Development Fund (GBA Homeland), Innovation and Technology Venture Fund (ITVF) of the Hong Kong SAR Government, MindWorks Capital, Silverhorn and Alibaba Entrepreneurs Fund. Alibaba Group Holding is the owner of the South China Morning Post.
Qupital manages to keep default rates "lower than industry standard," Wong said, because they analyse the activities of merchants using real-time data pulled from e-commerce platforms like Amazon and eBay. Qupital would look at the merchants' sales, refund rate, order cancellation rate, comments and ratings, according to Wong, and determine appropriate credit limits for them.
"We think that data reflects their real transactions and activities," Wong said. "If their sales deteriorate we can immediately reduce the credit limit or call back the loan earlier."
Since 2018, Qupital has disbursed a total of US$500 million in loans, and the company now has 7,000 merchants, according to Wong, with 99 per cent of them based in mainland China, mostly in the Greater Bay Area.
The country's "made in China, sold on Amazon" community has had a tough time recently following a crackdown by Amazon that shut down more than 50,000 Chinese stores, with the giant online e-commerce platform citing consumer abuses, such as paying for positive reviews.
Wong said that following the Amazon crackdown, they are now seeing a trend where Chinese merchants are expanding their operations on multiple platforms beyond Amazon, including Wish, Walmart Marketplace and Shopify. Qupital is also planning to work with more e-commerce platforms to pull merchant data for credit underwriting, Wong said.
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