For the last four years, the People’s Bank of China (referred to as the PBOC)  or China’s version of the US Federal Reserve has been tightening commercial, real-estate and, recently, personal lending.  Invoice factoring companies have been bucking the curve in this regard, so far.

China’s commercial bank lenders have been much more heavily scrutinized in the recent years. The first round of scrutiny was due to excessive lending to State Owned Enterprises (referred to affectionately as SOEs in China).  The four major banks in China have serious issue with their balance sheets due to incestuous lending to local city governments and government-owned enterprises that should not have been given credit…for many reasons (which is outside the scope of this article and better discussed over a cocktail).

In addition, the real-estate market has been too hot for the last four years, in part due to commercial lending standards being too easy.  The government has recently taken steps to require higher down payments, increase credit approval requirements, and make second home purchases more difficult.

Recently, many commercial lenders, especially in Beijing have been admonished for excessive personal loan amounts and loan terms that were too long.  On April 28, the China Banking Regulatory Commission (known as the CBRC) gave notice to large lenders to this effect as well as capping personal loans to 1 million RMB for individual loans (or $160,000 USD approx.).

On the other hand, “I have noticed a significant increase in factoring companies providing invoice factoring from our Asian operations recent reports,” states Mr. Stephen Perl, PMF Bancorp.  “I mostly see these factoring companies setting up, but very few are truly operational as discounters of invoices due to the VAT and gravity of dealing with invoices in China”, explains Mr. Perl.  So even though invoice factoring appears hot and many companies are establishing licenses, it is still very much in the developmental stage and being heavily monitored by the China PBOC.