Xiaomi is the latest Chinese technology company to move into banking, having joined forces with the country's biggest animal feed producer and a Sichuan-based convenience store operator to set up a private lender in southwest China.
With a registered capital of Rmb3 billion ($450 million), Sichuan Hope Bank aims to target small- and medium-sized businesses and online consumers and is expected to begin trading before year-end.
Through its wholly owned subsidiary Sichuan Yinmi Technology, Chinese smartphone maker Xiaomi has a 29.5% stake in the bank, which is based in Chengdu, capital of Sichuan province. Animal feed firm New Hope Group has a 30% stake while retailer Hongqi owns 15%, according to Hongqi’s filing with the Shenzhen Stock Exchange this week, after the bank gained regulatory approval.
As the first private lender in the populous but relatively under-developed Sichuan province, Sichuan Hope Bank plans to rely on mobile internet technologies and an online-to-offline presence to serve SMEs, individual consumers,and agriculture-related business.
The establishment of the bank comes as part of Beijing’s pilot programme to encourage more financial services for SMEs. Such Chinese companies have for years struggled to obtain financing from the big state-owned lenders, in spite of the fact they are regarded as key drivers of economic growth and job creation.
According to Yao Yudong, director of the research institute of finance and banking at the People’s Bank of China, the entry threshold for China’s financial industry is still “relatively high” and private capital could help to increase competition in the industry.
“China has to open small and medium-sized banks [to private capital] in large-scale and encourage private capital to enter the industry. We need at least 3,000 such banks,” he said at the Lujiazui Forum, one of China’s most prominent financial conferences, in Shanghai on Monday, according to domestic media reports.
Last year, five private banks including Wenzhou Minshang Bank, Shanghai Huarui Bank, and Tianjin Kincheng Bank were set up to help break the stranglehold of the state banking sector and fill the void for lending to small businesses and individuals.
Another dozen could follow, subject to regulatory clearance, Shang Fulin, chairman of the China Banking Regulatory Commission, reportedly disclosed at this year’s “two sessions” – plenary meetings of the country’s top legislative and consultative bodies in Beijing in early March.
Xiaomi’s move also reflects the tech firm’s push into the rapidly growing fintech space to diversify its business. The six year-old smartphone producer has in recent years been involved in producing air conditioners, TV sets, electric rice cookers, smart balancing cars, and drones.
In its core smartphone business, Xiaomi faces fierce competition from domestic rivals such as Huawei, OPPD, and Vivo, at a time when China’s market is approaching saturation. According to technology consulting firm Strategy Analytics, Xiaomi shipped 12.8 million smartphones in the first quarter this year, down from 14 million units over the same period one year earlier. Domestic competitor OPPD also overtook it to become the country’s second-largest smartphone marker after Huawei.
Before Xiaomi co-founded Sichuan Hope Bank, there was WeBank, China’s first online-only private lender created by Internet giant Tencent, which opened for business in January last year. Alibaba-backed online lender MyBank followed last June.
Despite being a newcomer in the business, analysts say that Sichuan Hope Bank could potentially perform well thanks to the strong offline footprint of its third-largest shareholder Hongqi. Hongqi ran more than 2,400 stores in southwest China as of the first quarter this year.
“The bank plans to install its ATMs in all Hongqi’s convenience stores. This could work [well] with the current services such as bill payment and lottery purchase. The business of consumer finance and supply chain finance could [then] fully unfold,” analysts at Citic Securities said in a research note on Tuesday.
Meanwhile, teaming up with New Hope Group could help Xiaomi to obtain financial skills, seeing as the conglomerate’s chairman Liu Yonghao was among the investors who set up the country’s first private lender China Mingsheng Bank in the 1990s.