Raphael Stevens

A U.K. Treasury department spokesperson said the government will set out plans to regulate “buy now, pay later” plans “shortly.”
This echoed comments from Tulip Siddiq, the new economic secretary to the U.K. Treasury, to Parliament earlier in the week.
U.K. BNPL legislation has faced multiple setbacks, not least because of political instability in the country, plus lobbying from some of the biggest names in the industry.

Buy now, pay later firms like Klarna and Block’s Afterpay could be about to face tougher rules in the U.K.
Nikolas Kokovlis | Nurphoto | Getty Images

Britain’s new Labour government will soon set out updated plans to regulate the “buy now, pay later” industry, a government spokesperson told CNBC.
A Treasury department spokesperson said the government will do so “shortly,” echoing earlier comments from Tulip Siddiq, the new economic secretary to the U.K. Treasury, to Parliament on Wednesday.

“Regulating Buy Now Pay Later products is crucial to protect people and deliver certainty for the sector,” the Treasury spokesperson told CNBC via email Thursday.
Earlier this week, Siddiq, who was selected as the U.K.’s new city minister following the landslide election victory of Keir Starmer’s Labour Party, told lawmakers that the new government is “looking to work closely with all interested stakeholders and will set out its plans shortly.”
This follows multiple delays to the roadmap for BNPL legislation in Britain. The government first set out plans to regulate the sector in 2021. That followed a review from former Financial Conduct Authority boss Christopher Woolard, which found more than one in 10 BNPL customers were in arrears.
BNPL plans are flexible credit arrangements that enable a consumer to purchase an item and then pay off their debt at a later date. Most plans charge customers a third of the purchase value up front, then take the remaining payments the following two months.
Most BNPL companies make money by charging fees on a per-transaction basis to their merchant partners, as opposed charging interest or late payment fees. Some BNPL firms do charge missed payment fees. But the model isn’t standardized across the board.

This disparity in services among different BNPL lenders is partly why campaigners have been calling for regulation. A key reason, though, is that people — particularly younger consumers — are increasingly stacking up debt from these plans, sometimes from multiple providers, without being able to afford it.

Gerald Chappell, CEO of online lending firm Abound, which uses consumer bank account information to inform credit decisions, said he’s seen data processed through his firm’s platform showing customers racking up “thousands of pounds” from as many as three to four BNPL providers.
While BNPL can be considered a credit “innovation,” Chappel said, “there’s a bit of me that can’t help feeling that was a product of a zero-interest rate environment. And now you go into a higher interest rate environment: is that still sustainable?”
“You have a weaker economy, more credit defaults. You’ve got a massive accelerating adoption of buy now, pay later, which also increase debt burdens. So I think a lot of those firms are struggling and are going to continue to struggle.”
Chappell said he wouldn’t be surprised if the Financial Conduct Authority, which is responsible for financial regulation in the U.K., ends up regulating the BNPL industry within the next 24 months.

Multiple delays to BNPL rules

Executives from two major BNPL firms, Klarna and Block, pushed back on those proposed measures, saying they threatened to drive people toward more expensive credit options like credit cards and car financing plans.
A spokesperson for Clearpay, the U.K. arm of Afterpay, said the company welcomes the government’s update that it’s planning an announcement on BNPL regulation soon. Afterpay is the BNPL arm of Jack Dorsey-owned fintech Block.
“We have always called for fit-for-purpose regulation of the sector that prioritises customer protection and delivers much-needed innovation in consumer credit,” Clearpay’s spokesperson told CNBC via email.
“Clearpay already has safeguards in place to protect consumers but we recognise that not every provider has the same approach. This is why we continue to advocate for proportionate and appropriate regulation that sets high industry standards across the board,” this spokesperson added.
A Klarna spokesperson told CNBC via email that the firm has “supported BNPL regulation for a long time, ensuring clear info, protection from bad actors & access to zero-cost credit.” “We’re pleased the government has committed to introducing this so soon after taking office,” they said.
“Too many lenders are offering unregulated BNPL that in turn doesn’t impact the credit scores of their customers, meaning other responsible lenders don’t have the full picture, so consumers don’t get the safeguards they deserve,” said Philip Belamant, CEO of BNPL company Zilch. “It’s time we level the playing field and remove this exemption. Regulation of this important sector is long overdue.”
Rival BNPL firm PayPal was not immediately available for comment when contacted by CNBC Thursday.
BNPL loans are a largely unregulated part of the financial services ecosystem, not just in the U.K., but globally. In the United States, the Consumer Financial Protection Bureau said customers of BNPL companies should be offered the same protections as credit card users.
The regulator unveiled an “interpretive rule” for the industry, meaning BNPL lenders, like Klarna, Affirm and PayPal must make refunds for returned products or canceled services, must investigate merchant disputes and pause payments during those probes, and must provide bills with fee disclosures. More

China on Thursday announced its most targeted measures yet for boosting consumption, which has remained lackluster since the pandemic.
Authorities announced they would allocate 300 billion yuan ($41.5 billion) in ultra-long special government bonds to expand an existing trade-in and equipment upgrade policy.
The policy at least doubles the subsidies for new energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 yuan per car, respectively.

China’s retail sales grew by 3.7% in the first half of the year from a year ago.
CNBC | Evelyn Cheng

SHANGHAI — China on Thursday announced its most targeted measures yet for boosting consumption, which has remained lackluster since the Covid-19 pandemic.
Authorities announced they would allocate 300 billion Chinese yuan ($41.5 billion) in ultra-long special government bonds to expand an existing trade-in and equipment upgrade policy. The document was jointly published by the National Development and Reform Commission — China’s economic planning agency — and the Ministry of Finance.

“There have never been such specific measures” aimed at consumption, Bank of China’s chief researcher Zong Liang said in a phone interview Thursday, according to a CNBC translation of his Mandarin-language remarks.
He noted how the new policy links Beijing’s ultra-long bond program — announced in March — with consumption.
“This is a very important measure for implementing the Third Plenum,” Zong said. He was referring to a high-level meeting of Chinese leaders last week that only occurs twice every 10 years, and which typically sets the tone for economic policy.

The latest Third Plenum concluded with the release of several major guiding documents over the past weekend that reaffirmed Beijing’s long-term interest in bolstering advanced tech. The official communique focused on “deepening reform.” It also said China would work to achieve its full-year national targets, but disappointed many analysts by not indicating major policy changes.
Policymakers have started to act in the last week. The People’s Bank of China unexpectedly cut interest rates on Monday, amid other changes, and on Thursday cut its medium term facility lending rate.

The National Development and Reform Commission on Thursday then announced the expanded policy to support consumption.
“The move is a three-birds-with-one-stone action: Spurring consumption, absorbing industrial output, and [solidifying] economic growth to meet the pledged target of 5%,” said Bruce Pang, chief economist and head of research for Greater China at JLL.
The policy at least doubles the subsidies for new energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 yuan per car, respectively.
The measures subsidize a range of equipment upgrades, from those used in farming to apartment elevators. Officials noted Thursday that about 800,000 elevators in China have been used for more than 15 years, and that 170,000 of those had been used for more than 20 years.
The policy also laid out specific subsidies for home renovations and consumer purchases of refrigerators, washing machines, televisions, computers, air conditioners and other home appliances. The document said each consumer could get subsidies of up to 2,000 yuan for one purchase in each category.
In allocating the roughly 300 billion yuan in ultra long-term bonds for local government to use for the subsidies, the policy noted the central government would take back any unused funds by the end of 2024.
“This means they’re stressing the money must be spent,” Zong said. He noted that the 300 billion yuan designation also reflects “a new way of thinking” which can have impact at scale.

Sluggish retail sales

The measures are coming at a time in which China’s consumers have been unwilling to spend, partly due to uncertainty about future income and the real estate slump.
China’s retail sales grew at a slower 2% year-on-year pace in June, which Zong said “was not ideal.”
Concerns about China’s lackluster consumer spending have recently gained a higher profile in a country where public discussion can be tightly controlled.
Trip.com co-founder James Liang this month called for Beijing to issue consumption vouchers, according to “The East is Read” newsletter that cited Liang’s post on Chinese social media platform WeChat. The same publication pointed out that Li Yang, head of the National Institution for Finance & Development (NFID), in late May highlighted China’s declining consumption.
China reported retail sales growth of 3.7% in the first half of the year, slower than the 8.2% pace recorded in the year-ago period.
That means “the pressure on spurring consumption is rather large,” Liu Xiaoguang, a professor at the Academy of Development and Strategy at China’s Renmin University, said in a presentation to reporters Thursday, according to a copy seen by CNBC. That’s according to a CNBC translation of the Chinese.
Liu noted that the housing market has yet to reach a clear turning point, and it would take time for one to solidify.
But he said with China’s recently announced plans for “deepening reforms,” the economy could grow by 5.3% this year, versus 5.1% without such measures. More

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Chinese electric car companies are outspending Tesla and traditional fuel-powered cars on research and development as a ratio to sales.
Many Chinese automakers already spend as much as or more than their global peers on R&D as a percent of revenue, a significant increase from many years ago, Paul Gong, autos analyst at UBS, told CNBC.
Geely’s vice president of autos R&D, Ren Xiangfei, told CNBC late last month that while the company is looking to improve both hardware and software for cars, the latter can provide more differentiation.

Nio’s second factory in the city of Hefei has around 2,000 human workers and 756 robots.
CNBC | Evelyn Cheng

BEIJING – U.S.-listed Chinese electric car companies are spending more on research as a ratio to sales than Tesla, according to CNBC analysis of the four automakers’ first-quarter earnings.
It’s a strategy for survival in China’s cutthroat auto market, the largest in the world. New energy vehicles, which include both battery and hybrid-powered cars, have grown rapidly to more than 40% of sales.

Many Chinese automakers already spend as much as or more than their global peers on R&D as a percent of revenue, a significant increase from many years ago, Paul Gong, autos analyst at UBS, told CNBC. “In certain cases, even in terms of absolute dollars, it has bypassed.”
Of the four U.S.-listed Chinese electric car companies, Nio ranked first, spending nearly 29% of revenue in the first three months of the year on research and development. That’s far higher than Tesla’s ratio of 5.4% in the first quarter and 4.2% in the second. Elon Musk’s company is known for having a relatively low ratio.
It’s less clear whether that higher spending can translate into long-term competitiveness.
Nio has operated at a loss for years and only seen deliveries for its premium-priced cars pick up in the last several months. In addition to car launches, the company has in recent years held events to promote its battery services and other tech, including one on car “quality” in late June.

“Everyone is talking about involution right now,” Feng Shen, chairman of Nio’s quality management committee said in Mandarin at the event, translated by CNBC. He was referring to a popular term in China to describe fierce competition, especially in the electric car industry.

“What companies should [compete] on is quality,” Shen said, adding that “if you can’t do a good job on quality, there’s nothing you can say.” He laid out Nio’s wide-ranging plan for boosting product quality, starting primarily with new tech and supply chain innovation.
Shen, who is also executive vice president of Nio, was previously president of luxury EV brand Polestar in China and worked in quality management at Ford Motor in the U.S. and China.
Nio in September 2022 opened its second factory in Hefei city, a manufacturing hub for many car companies. The factory has around 2,000 human workers and 756 robots, which automate much of the production.
“The key is to digitize every stage of manufacturing,” William Li, founder and CEO of Nio, told reporters in June, according to a CNBC translation of the Chinese remarks. He said if the digital system can be integrated across multiple levels of suppliers, the company can easily identify problems.
When asked about global production, Li said Nio would adhere to the same manufacturing standard but did not detail overseas plans.

Supply chain proximity

Hefei is the capital of Anhui province to the west of Shanghai. The region is called the Yangtze River Delta, which China claims is home to so many factories that a new energy vehicle manufacturer can find all the necessary parts within a four-hour drive.
China’s Ministry of Industry and Information Technology told CNBC in a statement that it has worked with car manufacturers and suppliers to create hundreds of best-practice cases and application benchmarks for smart manufacturing in the industry.
“A key competitive advantage for Chinese companies in China is actually the highly effective or efficient supply chain,” said Jing Yang, a director in Fitch Ratings’ Asia-Pacific corporate ratings division, with a focus on Chinese autos.
She noted that can help Chinese electric car companies respond more quickly to customers and market needs than traditional automakers.
Another part of the region, Zhejiang province, is home to Hong Kong-listed auto giant Geely and its U.S.-listed electric car subsidiary Zeekr.
Zeekr’s first-quarter results show the company spent 13% of sales on research and development. Parent Geely, which did not break out the figure in its first-quarter report, has spent at least 4% of revenue on research in the last four years, up significantly from prior years.  
Geely’s vice president of autos R&D, Ren Xiangfei, told CNBC late last month that while the company is looking to improve both hardware and software for cars, the latter can provide more differentiation.
“From users’ perspective, the functions that bring more surprises must be implemented through software,” Ren said in Mandarin, translated by CNBC.
Car software includes driver-assist, in-car entertainment and security features.
Ren noted that new energy vehicles can support more of these functions since they come with a larger battery than traditional fuel-powered cars.
“This will introduce a new concept, the software-defined car,” he said.
Geely last month launched its “Aegis Short Blade Battery,” which the automaker claims passed above-industry standard tests without exploding.
It’s a rival to BYD’s “blade battery” that arguably launched the company into its position as an EV leader. Geely ranked second in new energy vehicle sales in the first half of the year, putting Tesla in third place, according to the China Passenger Car Association.
Ren said the new battery, which is set for initial deployment in Geely cars, increases production costs by about 1,000 yuan (about $137.69) versus competitors’ vehicles.
Since the chemical formula for making batteries is relatively mature, it’s now more important to ensure consistency in manufacturing, he said. “That requires the support of a smart factory.”
Geely has also released an electric car architecture called SEA that it says allows for quicker production of different sized vehicles.
“Vehicle platform is probably the most important thing to look at, and then consistency with their approach,” said Taylor Ogan, Shenzhen-based CEO of Snow Bull Capital.
He said it’s important to see that a company is delivering something fairly soon after announcing it, and that there are separate teams already working on future product releases. “I think that’s the clear differentiator,” he said.

Tech companies vs. automakers 

UBS’s Gong cautioned the ratio of research spend to sales, sometimes called R&D intensity, isn’t a definitive measure of tech innovation.
“If they can sell more cars with a better profitability that basically means their innovative ways are probably right. Some of it may not be in cool features,” Gong said, noting it could include systemized cost cutting. “Less fancy, but really powerful.”
Xpeng had an R&D intensity of 20% in the first quarter. Li Auto’s was only 11% but the company’s range-extender cars have far outsold pure battery-electric vehicles.
When it comes to absolute U.S. dollars, Hong Kong-listed BYD spent the equivalent of $1.47 billion on research in the first quarter, or 8.5% of its revenue. That’s more than Tesla’s $1.15 billion spend on research and development during that time.
For the future, electric car companies are trying to differentiate themselves in terms of battery and software – two categories dominated by CATL and Huawei, respectively, said Jing Liu, professor of accounting and finance, and director of the investment research center at the Cheung Kong Graduate School of Business.
Liu said it’s unlikely that a company can produce a better product than either supplier, but that means that ultimately it is difficult for automakers to stand out in a market where consumers can easily switch between brands.
Huawei has touted it spends at least 10% of revenue on R&D. CATL’s intensity ratio was 5.4% in the first quarter.
— CNBC’s Sonia Heng contributed to this report. More