Returns on P2P Loans Set to Weaken as Chinese Regulators Step up Pressure

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Average returns on peer-to-peer loans in China are expected to remain weak as Beijing continues to crack down on internet lending.

The Chinese central government has continued to step up the pressure on the P2P lending sector since the start of 2019, with the release of the “Opinions Concerning Properly Performing Internet Loan Organisation Category-based Disposal and Risk prevention Work” (关于做好网贷机构分类处置和风险防范工作的意见) and the “Notice Concerning Further Performing P2P Online Loan Compliance Inspections and Follow-up Work” (关于进一步做实P2P网络借贷合规检查及后续工作的通知) by the Internet Finance Risk Specialist Rectification Work Team in January (互联网金融风险专项整治工作领导小组办公室).

The new measures arrive following a sharp decline in the number of P2P platforms operating in China in 2018, as well as a steady decline in returns offered by Chinese online loans over the past several years.

According to a report from Securities Daily average returns for China’s online lending sector saw a sustained fall from 2013 to 2017, from 24.93% in 2013 to 17.47% in 2014, to 12.05% in 2015, 9.06% in 2016 and 8.57% in 2017, before seeing a modest 0.73 percentage point bounce in 2018 to hit 9.3%.

According to domestic analysts the chief reason behind the revival in average P2P returns in 2018 was declining public confidence in the sector amidst the Chinese central government’s crackdown, prompting many platforms to hike rates in order to attract and retain investors.

Hu Eryi (胡尔义), a member of the statistical analysis committee of the National Internet Finance Association of China (中国互联网金融协会), said that high rates for P2P loans are unsustainable, and average returns for the online lending sector will remain in a downwards corridor that will push them beneath the 9% threshold.

Data from Wangdai Zhijia (网贷之家) indicates that in January the average comprehensive annual interest rate for 754 online lending platforms comprising 59.65% of all platforms was under 10%.

For 496 platforms, or 39.24% of those monitored, the average return was between 10% and 18%, while for 9 platforms (0.71% of those monitored) the average return was between 18% and 24%.

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