Gen Z is Driving China's Installment Consumption with Low Consumer Leverage, Report Finds

SHENZHEN, China, April 19, 2019 /PRNewswire/ -- China's 149 million Generation Z (Gen Z) has increasingly become the driving force behind the country's installment consumption market, spending more rationally than usually perceived, according to a survey released by Southern Metropolis Daily, a renowned Chinese newspaper, at Lexin Partner Conference 2019.

As consumption becomes the biggest engine of China's economy, the country's short-term consumer loan balance has also risen, reaching RMB8.8 trillion at the end of 2018, having increased by a multiple of 70 times over the past 14 years, according to The People's Bank of China. Young consumers are the primary drivers behind this trend.

Titled "New Youth, New Consumption," the survey covered 2,319 respondents in China with input from installment e-commerce platform Fenqile, who assisted in carrying out the survey among its customers. 

The key findings from the report are as follows:

Gen Z Drives installment consumption

• 22 to 25-year-olds form the backbone of the market as the biggest temporary mismatch between income and consumption needs typically occurs at this age. About 56% of the respondents aged between 22 and 25 say they will use installment services, followed by 26 to 29-year-olds, 47% of whom say they will do the same when they spend.
  On Fenqile, Gen Z contributed more than half of the sales during the Singles' Day shopping festival for the last three consecutive years, with the proportion rising to 67% in 2018, the survey indicated.
• Consumers from third- and fourth-tier cities, with both wages and living expenses lower than their peers in big cities, are more likely to use installment services. While only about 41% of the respondents from first-tier cities have used installment services, 76% of those surveyed in fourth-tier cities and 67% in third-tier cities say they have financed their purchases with installment services in the past.
• Installment consumption enjoyed higher popularity among educated consumers. About 53% of the respondents with bachelor degree or above have used installment services, while the number drops to below 47% for respondents without the same level of education.
• Enhancing the quality of life is the top reason why people choose installment services, with 58% of the respondents indicating this as the main reason. For example, iPhone purchases accounts for more than half of all smartphone sales on Fenqile, as the report cited, while industry-wide, only one out of eleven mobile phones sold in China was an iPhone in 2018, according to market research company IDC.

China's young consumers are more rational than they are usually perceived

• While China's household debt ratio has been rising over the past few years, the country's consumer leverage has remained at a reasonable level. China's short-term consumer credit balance, an indicator of the credit spent on consumption, rather than mortgages or car loans, was RMB8.8 trillion as of 2018, accounting for only 9.77% of China's GDP in the same year, according to the survey.
• Seven out of ten respondents claim that their debt-to-annual income ratio are below 30%. Nearly 80% of the respondents keep their average annual loan amount below RMB20,000, while less than 8% said they borrow more than RMB50,000 a year.
• Most of the installment consumers in China are highly creditworthy as these consumers value the importance of maintaining a good credit profile. Only 22% of respondents said they had overdue loans, among whom, 62% attribute it to losing track of the due date. Only one out of a hundred respondents think defaulting on their credit is "ok", while the majority of respondents are aware of the consequences of defaulting and delinquent behaviors.

Buy now, pay later, and be positive

• Two-thirds of the respondents say their life satisfaction has improved either slightly or significantly after using installment services, which reduces their financial pressure and helps to solve the mismatch between their current income and consumption needs.
• About 20% of the respondents that have used installment service claim that their incomes have increased by more than 40% over the past three years, while only 6% of those not using installment service state the same.
• Installment consumers tend to be more positive about future. Nearly 28% of the respondents using installment service expect their income to increase by more than 60% for the next three years, while only about 7% of the rest make the same prediction.

About LexinFintech Holdings Ltd.

LexinFintech Holdings Ltd. is a leading online consumer finance platform for educated young adults in China. As one of China's leading financial technology companies, Lexin integrates its e-commerce-driven installment finance platform, Fenqile, with advanced risk management technologies, the Company's Dingsheng asset distribution technology platform, and the Company's Juzi Licai online investment platform for individual investors, to create a comprehensive consumer finance ecosystem. The Company utilizes technologies including big data, cloud computing and artificial intelligence to enable the near-instantaneous matching of user funding requests with offers from the Company's more than 30 funding partners, which include commercial banks, consumer finance companies, and other licensed financial institutions.

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