Baidu Affiliate Looks to Expand Further Into Fintech With Stake in Consumer Finance Firm

An investment in a consumer finance company will give a unit of Chinese search giant Baidu access to a coveted license that will help it further its plans to expand into the financial technology (fintech) industry.

Duxiaoman (Chongqing) Technology Co. Ltd., a subsidiary of Baidu Inc.’s financial affiliate Du Xiaoman Financial, recently decided to invest in Harbin Bank Consumer Finance Co. Ltd. (HBCF), a consumer finance subsidiary of Hong Kong-listed Harbin Bank Co. Ltd., by subscribing for 450 million yuan ($65 million) of HBCF’s additional registered capital, Harbin Bank announced Thursday.

The local branch of the China Banking and Insurance Regulatory Commission in the northeastern province of Heilongjiang gave HBCF approval (link in Chinese) on May 10 to increase the company’s registered capital and adjust its shareholding structure. Upon completion of the capital increase, Duxiaoman will become HBCF’s second-largest shareholder with 30% of the consumer finance company’s shares. Harbin Bank will hold 53% of the shares. HBCF is slated to complete the process within six months, according to the regulator.

In 2015, Baidu set up its financial services unit, now known as Du Xiaoman Financial, to offer short-term loans and investment services. Last year, Baidu spun off the subsidiary in a $1.9 billion private equity deal. In August, Du Xiaoman Financial was granted permission to sell mutual funds, making it the last of China’s four major tech giants — Alibaba Group Holding Ltd., Tencent Holdings Ltd. and JD.com Inc. — to obtain a license to do so.

Du Xiaoman Financial counts wealth management and consumer credit among its main businesses, through which it offers education loans and consumer financing, according to Baidu’s latest annual report.

Through its investment, Du Xiaoman Financial will gain access to HBCF’s consumer finance license, allowing it to compete in the already crowded market.

There are 23 licensed consumer finance companies in China. At the end of 2018, HBCF had 7.1 billion yuan total assets and a balance of loans of 7 billion yuan, according to Harbin Bank’s annual report.

China’s lucrative online lending market has attracted a multitude of players, including licensed financial institutions such as traditional banks, consumer finance companies, and microlenders and registered peer-to-peer lenders, not to mention unqualified online lenders.

Besides Baidu, several of the other tech giants have long been seeking licenses to set up consumer finance firms. Caixin has reported (link in Chinese) that Ant Financial Services Group, Alibaba’s fintech affiliate that runs Alipay, and JD.com have both been preparing to apply for the license.

A previous version of this story misstated the date when the local branch of the CBIRC in Heilongjiang gave HBCF its approval. It was May 10.

Contact reporter Timmy Shen (hongmingshen@caixin.com)