P2P shake-up will leave 200 standing

Business | Bloomberg and Tereza Cai 4 Oct 2018

Chinese investment bank China International Capital (3908) anticipate peer-to-peer lending platforms will be reduced from the remaining 1,800 to fewer than 200 after more dominoes fall in the industry.

More than 400 such lending platforms collapsed from June through August, according to Shanghai-based researcher, Yingcan Group.

Peer-to-peer lending, which became popular in China after a tightening of bank credit in 2010, followed two years of stimulus spending to counter the global financial crisis, and has attracted 50 million savers in mainland.

The total investment amount outstanding soared to a record US$200 billion (HK$1.56 trillion) in June.

As many as 4,000 people have lost up to US$117 million as a result of the failure of a platform called PPMiao, according to savers.

A victim who lost nearly US$40,000 in the platform wrote a note to her parents in early September before hanging herself.

The government has been seeking to increase control over what has been a largely unregulated business. Earlier in the summer, the agency that regulates banking warned savers using P2P sites they should be prepared to lose all of their money.

Although not all troubled P2P platforms are accused of fraud, officials have said many failed sites needed cash coming in to pay money out - in other words, they were Ponzi schemes.

Other sites attracted investors for only a few weeks before the owner absconded with the money.

"The risks on a lot of these platforms were not adequately communicated to investors," says Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia, who cites "guaranteed return plus principal" as the typical pitch to investors. "It was unsustainable."

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