A new report on China’s peer-to-peer (P2P) lending market points to the accelerated closure of online platforms since the start of the second half, as Beijing steps up its crackdown on the sector.
According to the report entitled “The Direction of Development of the P2P Lending Sector” (P2P网贷行业的 发展走向) by Yang Fei (杨飞), a researcher with the Industrial and Commercial Bank of China’s Urban Finance Research Institute (工商银行城市金融研究所), over 100 P2P platforms in China have succumbed to various “risk events” since June.
These risk events include liquidation, suspension of operation, absconding of actual controllers and suspension of payments of principal and interest.
For the first five months of 2018 China saw around 20 P2P platform closures per month, yet this rate leaped to 63 in June, before surging to 118 in July by the 20th of that month.
Yang points out that some of the P2P platforms that have succumbed to problems are reputable, larger in size, and have been operation for many years.
These include Tang Xiao Seng (唐小僧), which has over 10.82 million registered users, and Yin Dou Wang (银豆网”), which had a lending balance of 4.4 billion yuan, the real controllers of which have both absconded from contact.
Other major P2P platforms that have closed include Ai Touzi (爱投资), which is a member of the Payment and Clearing Association of China, and had obtained the highest AAA credit rating from China’s iTrust accreditation body.
Data from Wangdai Zhijia (网贷之家) indicates that as of the end of June China had seen the establishment of 6183 P2P lending platforms, of which 4347 have either suspended operation or succumbed to problems, leaving only 1836 in regular operation.
Compared to November 2015, the peak period for P2P lending in China when the number of active platforms reached 3476, the number of platforms in regular operation has fallen by almost a half.
June online lending transactions totalled 175.7 billion yuan, for a decline of 28.4% compared to the same period last year.
The ICBC report highlights two main forms of closure for China’s P2P platforms:
i) Direct closure, due to lack of funds, disappearance of real controllers or official investigation over suspected illegal fund-raising, benign liquidation.
ii) Benign liquidation, for reasons such illiquidity, with the P2P platform deciding to withdraw from operations while committing to remain in contact with clients and make prompt repayments.
According to the report there are three main factors behind risk issues for China’s P2P platforms:
i) Easing economic growth in tandem with accelerated deleveraging causing the gradual emergence of risk.
ii) The spread of a market mood of panic, triggering a “domino” effect.
iii) The continued operation of a large number of online lending platforms in breach of regulations, which is a fundamental factor behind the onset of risk.
The report nonetheless points to the benefits brought by P2P lending, which it says can resolve the problem of expensive and difficult finance for small and micro-enterprises, satisfy the investment needs of the general public, and expedite financial inclusion in China.