The landscape of consumer finance in China has been markedly dynamic, particularly highlighted by the recent developments surrounding consumer finance licensesThese licenses, once seen as golden tickets due to their limited availability—only 31 were issued nationwide—are now experiencing shifts in value and perception as market conditions evolveThe case of Hebei Xifeng Consumer Finance Co., Ltd(hereinafter referred to as "Xifeng Finance") exemplifies this transition as it grapples with challenges in a transforming market.

As of now, a substantial 39.25% stake in Xifeng Finance is mired in rights restrictions, labeled as "sealed and pledged." Following two failed auction attempts, the company is set to undergo a public sale of its shares between January 9, 2025, and March 10, 2025. However, reports emerging earlier this month reveal that the application for a postponement of this sale has been submitted, raising questions about the future of this stake.

The stakes are high; the equity in question was assessed at a value of 629 million yuan

The initial auction's starting price was set at 440 million yuan, but by November 2024, the price had depreciated to a roughly 30% reduction without attracting any bidders, leading to another failed auctionFollowing a further price drop of 88 million yuan, the stake was reoffered in December 2024, only to once again fail to find a buyer, suggesting a troubling pattern of diminishing interest and perceived value in consumer finance licenses.

Industry insiders have indicated that Xifeng Finance's status as the only consumer finance license holder in Hebei province complicates matters, with stringent scrutiny from regulatory bodies on potential buyersThe provincial government's involvement delineates a protective stance toward the company amidst the challenging market environment.

Yet, a contrasting perspective has emerged among other industry executivesThey argue that the cooling demand for these licenses can reflect broader challenges and opportunities within the consumer finance sector as it transitions from rapid growth to a focus on refined operations

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The industry's future hinges not only on internal capabilities but is also influenced significantly by the external economic landscape and policy shiftsAs such, the need to redefine the value of licenses, reevaluate risk management practices, and enhance customer experiences has come to the forefront.

Against this backdrop, the historical context behind state regulations sheds light on the evolving governance framework designed to enhance corporate integrity and shareholder accountabilityNew regulations introduced in 2024 explicitly state that primary shareholders are not to pledge or create trusts over their equity interests in consumer finance companies, indicating a shift towards more stringent controls.

According to the regulatory guidelines, a "main shareholder" is defined as anyone who holds at least 5% of shares or voting rights within a consumer finance companyIn Xifeng Finance's case, its ownership breakdown reveals a significant stake from Zhangjiakou Bank, which controls approximately 47.1%, while other stakes are held by Shenzhou Youche and Blue Whale Holding Group

Alarmingly, shares held by Shenzhou Youche and Blue Whale have been under pledge since 2020 and 2018, respectively, raising alarms about compliance with new regulations.

Insiders with close ties to Xifeng Finance remarked that the equity pledges predated the introduction of the new regulatory framework and that the company is actively seeking suitable shareholders while it finds itself in a transitional waiting period, not flagged as non-compliant as of yetThe legal interpretations surrounding these pledges suggest that the new regulations are not retroactive, allowing Xifeng Finance some leeway as they navigate their circumstances.

Despite the historical issues, the repeated failures of equity auctions beg the question of Xifeng Finance's overall attractiveness as an investmentIt reflects larger shifts within the consumer financial landscapeWhile consumer finance licenses remain relatively scarce compared to other financial licenses, there have been notable instances of equity changes that may signal a broader trend.

For instance, between 2019 and 2021, non-controlling stakes in consumer finance companies have drawn significant interest from investors

In May 2019, a strategic investment by Baidu’s affiliated company in Harbin's Ha Yin Consumer Finance led to a capital increase, granting them a substantial minority shareSimilarly, in 2021, the Didi rideshare company pounced on an opportunity to deepen its investment into Hangyin Consumer Finance, showcasing a pattern of strategic partnerships emerging around consumer finance licenses.

However, more recent events illustrate a cooling sentiment in the marketNotably, in 2023, the transfer of a 19% stake in Jin Cheng Consumer Finance experienced a steep discount, signaling reduced willingness among investors to pay premium prices for equity in consumer finance licenses.

When ranked by registered capital, Xifeng Finance finds itself positioned midway in the industry ladder, raising questions about its competitiveness in attracting investments compared to peers with more aggressive growth strategies

The changing hierarchy among consumer finance companies indicates a shift where even previously lower-ranked firms are now capturing the attention of larger investors.

Industry insiders emphasize that the unsuccessful auctions are symptomatic of a wider market recalibration rather than isolated incidentsThe once-coveted consumer finance licenses are now recognized as just one piece of the puzzle, with market players becoming increasingly aware that possessing a license does not guarantee success.
An executive pointed out that as economic pressure mounts, consumer repayment abilities are hampered, leading to rising delinquency rates in financial products, particularly in unsecured credit lendingThe specter of increasing non-performing loans among leading institutions amplifies these concerns, emphasizing that even top-tier players may face downfall if they cannot effectively manage risk.

Despite these shifts, the allure of consumer finance licenses remains for certain entities, notably urban commercial banks