Online lending is feeding the insatiable purchasing desire of Chinese youths

4th January 2019, 9pm. Wu Qing from Jiangsu, Huai'an, was visiting his wife Xu Rong at her rental flat, with his mother and a few relatives. The pair were negotiating a divorce. No one answered the door. Rummaging for his keys, Wu Qing eventually opened the door to the pungent smell of pesticides. His wife lay lifeless on the bed, their three-year-old son beside her, icy cold. It no longer mattered that their son was wearing a 3,000 RMB down jacket, or that one of her makeup kits cost 30,000 RMB. Overspender Xu Rong had fallen prey to online lending. She had burdened herself with a loan of over 2 million RMB.

These stories are not new to China, having heard them repeatedly over the past two years. Many youths lack self-control in their spending habits, and are turning to online lending services to finance their hefty purchases. Suffocated by their debts and left at wit's end, many emptied their parents' savings, landing the entire family in a debt crisis. Some went to the extremes and took their lives. Online lending has earned itself a fair share of condemnation from the public and society is watching to see how the Chinese government is punishing illegal money lending services, more commonly known as "trap loans".

However, youths are not facing bankruptcy because they were tricked by "trap loans"; many were already using legal online lending services run by major dot-coms in China. Hence, when these youths turn to illegal loan services who operate at interest rates exceeding what's allowed under the national law, they're already in a state of bankruptcy by borrowing to pay off debt. In other words, they have their uncontrollable spending habits to blame.

A survey done by Rong360 (a China fintech platform) reveals that 53% of Chinese millennials are users of online lending services. 30% of borrowers are unable to pay off their debts, using another loan to pay off an existing one. Approximately two- to three-in-one hundred Chinese millennials who are users of online lending services are at the verge of or already in a state of bankruptcy, their salaries insufficient to pay off the incurred interest. Cyber risk management surveys revealed that some youths are simultaneously engaging the services of 20 or more online lending platforms.

Debt crises resulting from uncontrolled spending habits is commonplace among Chinese millennials. Approximately 15% of youths just need to be out of a job once to become bankrupt. It is no longer a problem of the minority; the entire society can be put into turmoil by an imminent financial crisis.

With the advancement of dot-coms, a growing young population of Chinese are afflicted with an insatiable desire to consume. Combined with knowledge of psychology and social engineering, big data and AI are powerful digital tools which allow business frontrunners to manipulate the faint-hearted consumers as they please. This is the root cause of the problem. If the government and society do not intervene, its effects will continue to exacerbate.

The internet is an intimidating space but not for the reasons popularised by the media. No doubt the internet absorbs a multitude of user data to curate products and advertise them to targeted groups of people; that's why families that have just welcomed a new baby get bombarded with diaper advertisements, and university students who're on summer holidays get tempted to go on a vacation. However, the true picture is darker.

The root cause of overspending among youths-so excessive that girls resort to selling sex for money-is not due to targeted marketing. The heart of the problem lies in the niche marketing of luxury goods. Business frontrunners are highly skilled in utilising information cocoons to effectively brainwash immature consumers. Consumers become convinced that they have to possess that luxury item to go from zero to hero, blind to the fact that these luxury products are simply low cost items with an unimaginably huge profit.

In the information age, one's daily information sources can be classified into: news, entertainment, work, and social networking. This information forms our perceptions of society and life in general. An individual in the lower rungs of society will have simpler social networking and work-related information. That's when he or she becomes an easy prey to information cocoons.

To the majority of youths, what welcomes them on their WeChat or Xiaohongshu app (小红书) news feeds from the moment they wake up, are the masses of sponsored articles written by influencers with the sole purpose of influencing them to purchase whatever's promoted. Take that pretty skirt for example. It'll only be flattering if you buy and wear it now. Will you still look good in it when you're 40? Or that limited edition Louis Vuitton bag. Surely you'd want to be the envy of your colleagues? Have a quick scroll of TikTok (social media platform to create and share short lip-sync videos) during lunch break and you're again bombarded by influencers flaunting the many luxury items they possess. When you're back home and watching your favourite TV series, the female lead (your girl crush!) is also clad in designer wear. Finally you're preparing to sleep, and scrolling Weibo mindlessly, you see your idols decked out in designer pieces even in their daily lives. Life doesn't give you a break, does it?

The majority of youths are constantly surrounded and hypnotised by such an information overload from news, entertainment, and social networking platforms that they have lost control over their lives. "Buy that luxury item," says a TV series. "Wear that pair of designer shoes," says an online article. Youths are pushed to make hefty purchases, thinking that they've in turn bought happiness. With each purchase of a luxury item, the AI behind such advertisements receives positive feedback. The user is signalling to the AI: "Your algorithms are working. Keep sending these advertisements over." And so, users are faced with more of such pop-ups, tempting them to make yet another purchase. Scheming online platforms also sneak in pop-ups of online loan services, just to make sure you have enough cash to pay for your purchases.

Additionally, armed with a deep knowledge of psychology, business frontrunners have also incorporated elements of social networking into e-commerce platforms. For example, you can now make friends with other like-minded buyers over at China's largest online platform for preloved second-hand items, Alibaba's Idle Fish (Xianyu 闲鱼). This mutual encouragement from friends drives consumerism further.

At the same time, as soon as an article or a video has successfully proven to be effective in persuading (read, manipulating) users to purchase more, this magical algorithm will immediately be transferred to other marketing and business frontrunners via a variety of data-processing tools. By learning from one another and tapping on the most profitable portions, they are able to boost sales at an even quicker speed.

Acting under pressure from the constant bombardment from all sorts of channels shouting out similar messages, youths who lack self-control have no choice but to surrender their money to luxury brands reaping impossibly high profits. The portion of youths who aren't earning that much thus borrow to consume, reaching the point of no return.

Chinese youths' out-of-control spending habits have drawn much criticism from the Chinese society. However, public opinion agrees on one thing: the individual's spending and loan habits are personal, and should remain personal. Third parties, including the government, have no right to intervene.

This argument is, in my opinion, flaw-ridden. The consequence of large-scale overspending is not for the individual to bear alone; an out-of-control debt situation creates a systemic financial risk, a consequence the entire society has to suffer. Hence, the Chinese government cannot condone overspending youths who casually take up loans and eventually land themselves in bankruptcy.

With technological developments spearheaded by AI, the job market is quickly evolving. Our financial systems, however, can't keep up with the speed of technology. In the AI era, a multitude of jobs can be replaced by a new technology in the blink of an eye. Take for example the white-collar professionals who make a livelihood through creating promotional videos for movies. Introduce AI editing, and they're out of jobs. Or the lower-tiered lawyers in charge of clerical duties; they can be easily outclassed by smart robots. This would create a paradigm shift in the career paths of white-collar professionals and industrial workers alike. Gone are the days where they work until retirement upon graduation. They would now be practicing lifelong learning in anticipation of the changing career landscapes, enhancing their re-employment abilities. The periodic lapses of unemployment will become the norm.

However, the consumption to credit status ratio among China's millennials shows that 15% of youths will face bankruptcy as soon as they're out of a job. Moreover, risk management models of current banking industries and other online loan services platforms are a product of the pre-AI era, under the assumption that the majority of white-collar professionals are able to have a long and comfortable stay in their jobs. In the AI era, the majority of white-collar professionals will be constantly changing jobs and learning to adapt to the changing markets. We will lose stability in our career paths and individuals who borrow to pay off debt will face possible bankruptcy. The effects of societal financial risks as a result of uncontrolled consumption will be greatly magnified.

Uncontrolled debt as a result of uncontrolled consumption can no longer be viewed as an idiosyncratic phenomenon. It is also counterproductive to stand on a moral high ground and blame the individual or the online platforms. While it may be difficult for society to control the desire to purchase, the same cannot be said for controlling debt. A social commentator once advised ways to curb the problem: as soon as a university student takes up a loan, the platform has to notify his/her parents and immediate family members. A cap must be placed on loans across all platforms. If one is already financing a cash loan, a personal consumption loan must not be approved.

The Chinese government should tackle societal by-products and issues brought about by digital advancements head-on, actively mitigating future societal risks.