The opening of new frontiers, meanwhile, will enlarge the total scale of the financial industry and contribute to the country's economic growth.

Limited effect in a short time

In general, the launch of consumer finance companies will help increase the public's spending ability in the immediate and the long term, while relieving strains on spending, thus promoting social consumption.

There are several factors at play here. For one thing, the real effect of consumer finance on the economy will not pay off in a short period of time. And overall, the Chinese people have a conservative culture when it comes to spending and consumerism.

Technically speaking, consumer finance is effectively an overdraft—something that uses tomorrow's money to buy today's goods. The problem is that most Chinese people have been raised with financial habits that dictate living within their own means and, thus, are not willing to borrow money.

For older Chinese, it takes an even longer time to accept the idea of spending more than they have been earning. In this sense, the effect of consumer finance should not be overestimated.

At the same time, most people have little expectation for increases in incomes. Consumer finance, in itself, is borrowing money—money that will have to be repaid in time. Thus the equation projected future income growth. The expectation for this income growth and stable employment, moreover, is largely related to the overall economic situation.

In other words, consumer finance culture is the product of high-level economic development. China, as a developing country, has a large low-income population that faces neither stable employment nor fast income growth. This creates uncertainties in payment abilities, and this situation shall take a long time to improve.

In the long run, though, the traditional culture of consumption may evolve with economic development and the improvement in income re-distribution. Of course, neither of these will transpire in a short period of time.

Greater risks

China's younger generation, on the other hand, has accepted a culture of consumption different from that of older generations and might be the target of the consumer finance experiment.

For one thing, younger Chinese are more open to new ideas and are less conscious of credit. In theory, they have infinite expectations for increased incomes and spending abilities because they are young, although there are risks in overspending, too.

But China in general should not have overly optimistic expectations for income growth for this tier of society.

It has been reported recently, for instance, that China's non-performing credit card debt has mostly been brought on by young consumers. Thus, we should keep in mind that the young generation might be not just where the potential success of consumer finance companies lies, but the major risks, as well.

Consumer finance companies, not unlike credit cards, are also mechanisms to which great importance on credit risks should be attached.

Privately owned consumer finance companies, especially, should impose stricter risk-prevention mechanisms than banks issuing credit cards. Otherwise, bad debts will directly consume registered capital.

If they are unable to inject new money, their survival will be endangered. The consumer finance companies should thus try to strike a balance between risk prevention and credit expansion, which is crucial to the success of the trial phase.