Shake-up in China's online P2P lending sector
- By Chen Xia
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E-mail China.org.cn, January 22, 2018
The past New Year's Day holiday might not have been a time of celebration for some Peer-to-Peer (P2P) investors in China.
Several Chinese online lending platforms announced a repayment delay or liquidation amid tightening government regulations.
P2P lending, a form of lending without a traditional financial intermediary such as a bank, has grown rapidly in China over the past few years. However, the sector has also been dogged by scandals and fraud, requiring the government to adopt harsh measures to promote healthy sectoral development.
On Dec. 8, 2017, the central authorities issued a notice, requiring local governments to overhaul the online P2P lending sector in their jurisdiction. Major online lending platforms must be registered before the end of April, and the rest before the end of June.
There are strict requirements in regard to important matters, such as the transfer of creditor's rights, provision for risks and third-party depository.
Six months have been given to existing platforms to register their business, but so far, official records show no one has succeeded. The harsh rules have spelt doom for many platforms.
On Dec. 26, 2017, a Beijing-based online lending platform ishoutou.com made an online announcement that it was going into liquidation due to compliance risks. It promised to pay back all loans by 30 percent, 30 percent and 40 percent respectively in the three months from February to April.
However, the company owner, Yang Yinghua, went missing the next day. Two days after the liquidation was announced, the company was listed in the catalogue of companies with abnormal operating conditions in the National Enterprise Credit Information Publicity System.
On Jan. 3, bangyoudai.com, a P2P lending company founded in 2013, announced it had finished the liquidation process before New Year's Day. It published a plan to repay investors, but didn't mention how many were involved, how much it owed, and how to ensure its plan was handled well.
An industry insider told the business magazine Investor Journal Weekly that with the government tightening oversight, many previous P2P lending operations were found to be highly risky and were declared to be illegal. When P2P platforms tried to get rid of the problematic businesses as required, the risks broke out and dealt a heavy blow to them all.
The strict requirements for business registration is providing hard for some platforms.
On Jan. 2, dfsjr.com, a Shenzhen-based online P2P lending platform, announced a delay in repayment from several lenders, so that the company faced a fund shortage. Previously, the company was planning to register its business under the new regulation, but its prospect have dimmed, because without sufficient funds, it can't meet the requirement on third-party depository.
According to wdzj.com, a website focusing on P2P lending research, the total number of online lending platforms will fall to around 800 in 2018 from 1,931 in 2017. It means that more than 1,000 online lenders will be eliminated from the industry this year.
Tightened oversight may be bad news to platforms with dubious operations, but to those with high-quality operations, it's only a matter of procedure.
Hexindai, the first Chinese online lender listed in Nasdaq, set up a special team to prepare for registration. It has adjusted its business scope and adjusted third-party depository to meet the requirements. "A company will have no future if it can't meet the basic standards," said CEO Zhou Xinming.
"A shake-up is taking place in the industry," said Lou Zhenfa, vice president of online lending platform jia16.com. He hoped investors would remain optimistic about the industry's future, and advised people to choose those in active preparation for business registration when making investment.
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