China’s online lending sector is coming under increasing pressure from regulators as platforms continue to capsize.
A crackdown on P2P online lending has already led to a sharp decline in the number of active platforms operating in China, as well as the number of new platforms coming online.
As of the end of the first half of 2018 there were a total of 1504 regularly operating platforms in China’s P2P lending sector out of 5983 platforms monitored by Lingyi Zhiku (零壹智库), for a YoY decline of 25.2%.
The figure marks a sharp drop in the number of P2P platforms operating in China compared to a peak of more than 6000.
Online lending platforms have continued to topple since the start of the second half, with Yonglibao (永利宝) announcing on 16 July that the whereabouts of the company head were unknown, as well as requesting that investors report their concerns to the authorities.
The platform first came online in 2013 and has processed transactions worth a total of 7.6 billion yuan, with a user base of 890,000.
On the morning of 17 July Yonglibao issued a public announcement stating that the platform had suspended operation the day previously, and would commence liquidation proceedings.
The problems faced by China’s online lending platform have triggered greater scrutiny and intervention from government regulators.
The National Internet Finance Association of China (中国互联网金融协会) (NIFAC) has called for relevant authorities to “further strike against conduct including malicious absconding from debt.”
NIFAC also said that “entities planning to withdraw should increase transparency, including to avoid worsening a mood of panic amongst intensifies.”
While the Chinese authorities says efforts to clean up prevailing risk in the P2P sector have already borne fruit, they have also indicated that rectification work is set to continue until at least the end of June 2019, with measures such as on-site inspections and public disclosures set to soon follow.
Dong Ximiao (董希淼), a researcher with the Chongyang Institute for Financial Studies at Renmin University, said to state-owned media that regulatory policy is steadily intensifying and requirements are becoming stricter.
This has led to a rise in compliance costs, prompting some platforms to actively launch liquidation proceedings.
“Additionally, as the education of investors deepens, the risk awareness of investors has increased,” said Dong. “Risk discrimination capability has risen, and risk preferences have declined, with investors starting to withdraw from high-risk platforms.”
Dong said that transparency was the key to ensuring the viability and compliance of China’s online lending sector.
“Information disclosures and platform transparency are key indices for determining the compliance and security of platforms,” he said.
According to Dong increasing the transparency of online lending platforms can reduce the information asymmetry between investors and borrowers, which will help to strengthen the trust of investors in platforms and mitigate the spread of panic.
Regulators pushing for online lending platforms to strengthen information disclosures also helps to accurately transmit risk and return information to the market, enabling investor to make more prompt and accurate judgements and helping to stem the onset of broader risk events.