By Xiao Yulu
The Chinese internet finance industry is currently shivering under a cold front known as Regulation No. 9. Recently, a leaked spreadsheet detailing massive layoffs across major players has gone viral and the depth of the cuts indicates the first wave of a massive industry purge has arrived.
The spreadsheet showed Shuhe Technology laid of 30% of its workforce, Mashang Consumer Finance cut its technology team from over 3,000 to around 200, Du Xiaoman got rid of around 10% of its staff and suspended loan services in some business lines, and Qifu Technology laid off nearly 20% of its staff although it is bucking the trend by expanding overseas.
It turns out that online lending businesses, which expanded massively under the guise of fintech were merely a byproduct of loose monetary policy and the peak of the internet economy. Once regulatory loopholes were closed and funding costs rose, the easy profits these quasi-fintech companies made during the boom times by providing small loans to Chinese consumers evaporated.
The industry’s growth relied on a simple formula: high traffic and high interest rates. Companies facing slowing growth in search engines, spun off their fintech arms to chase aggressive expansion. By 2024, the outstanding loans of Du Xiaoman, which was originally part of search giant Baidu, hit nearly 260 billion yuan ($38 billion), the fourth-highest in the industry. Even small regional banks jumped in, using these platforms to bypass geographic restrictions on lending as they hunted for growth. As long as interest rates remained high — often hitting the 36% official ceiling — everyone in the chain made money, thanks mainly to regulatory arbitrage.
The tide goes out
Regulation No. 9, which was issued in March 2024, changed the game by cutting the umbilical cord between small banks and fintech platforms. The rules mandate that banks must manage their own risk and are strictly forbidden from outsourcing credit approval. Faced with these hurdles, many banks simply walked away.
For the fintech platforms, the squeeze has been even tighter. The regulation bans hidden membership fees and service charges that effectively inflated interest rates. Major players were forced to lower their lending rates to around 24%, causing profits to crater as revenue growth stalled.
Qifu Technology, for example, saw a 20% drop in profit despite rising revenue. The disruptive impact of the regulations was laid bare by Shuhe Technology, which operates the Huanbei online credit platform: after the new rules hit, its valuation reportedly plummeted by 75% in months as it swung from a healthy profit to a massive loss.
As the saying goes: only when the tide goes out do you discover who’s been swimming naked. Many firms that claimed to be AI-driven were in reality just high-speed funnels for predatory lending.
An industry struggles to transform
The industry is now facing a fundamental identity crisis. In the past, “technology” meant clever user acquisition and aggressive debt collection. Under the new regime, the requirements have shifted to genuine risk modeling and data compliance.
Even companies with massive R&D budgets are struggling to pivot. Mashang, which has consistently been the third-largest online lending platform, recently withdrew its IPO application after five years of trying. As long as consumer finance companies depend on high interest rates or high interest spreads, their target customer base remains limited to subprime and lower-income individuals. Customer acquisition and funding costs are high, and default rates are high. No matter how advanced its front-end risk control claims to be, Mashang is essentially making money on a knife-edge.
Regulation No. 9 is more than just a policy update; it is an expiration date for the old internet lending era. For the survivors, the path forward requires a total transformation from financial middlemen to genuine technology providers—a transition many will not survive.
Source: Juchao WAVE (巨潮WAVE)
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