China’s P2P Crackdown Leaves Just 29 Operators in Business

Savers who invested in the thousands of now-defunct P2P platforms over the last several years have not yet managed to recover their funds.

CBIRC (China Banking and Insurance Regulatory Commission) chairman Guo Shuqing has revealed that only 29 P2P lending operators remain in the country, down from as many as 6,000 before a crackdown on the sector began five years ago.

Speaking with CCTV in an interview, Guo reportedly said P2P lenders still owe depositors about CNY 800 billion (USD 115 billion) and that he will do his best to help victims recover their funds. “We’ll assist public security authorities to track down the money even if there is only a glimmer of hope. The goal is to repay depositors as much money as possible,” he said.

The initial scrutiny of the sector revolved around the use of unregulated and highly leveraged P2P loans to fuel margin trading in the stock market. Regulators responded by forcing some P2P lenders out of business and requiring others to enhance disclosures and entrust investor funds to banks.

In 2016, the first arrests at a P2P lender were made. P2P platform Ezubao was labelled a Ponzi scheme after it funnelled investor funds into fictitious projects. Its chief executive was later sentenced to life in jail.

In subsequent years, authorities ramped up efforts to crack down on the sector, prompted by large scale protests from investors seeking compensation against P2P fraud and malfeasance. New restrictions were introduced, including bans on accepting public deposits, providing guarantees for lenders, and selling financial products.

Following mounting arrests, frauds and shutdowns at P2P platforms, regulators last November introduced a licensing process for the remaining operators, subjecting them certain restrictions on business scope and requirements to set aside risk reserves and loan loss provisions.

Still, savers who invested in the thousands of now-defunct P2P platforms over the last several years have not yet managed to recover their funds. According to Regulation Asia sources, groups of investors have been convening on popular social media platforms such as WeChat and QQ to discuss the lack of progress by authorities to help them recover their funds.

These social media groups are regularly being censored, purportedly to prevent investors from gathering in protest of their losses. The P2P crisis in China is largely seen as a direct result of inadequate supervision by regulators, sources say.

Meanwhile, local media outlets are discouraged from reporting on the losses suffered by investors in China’s P2P lending crackdown, leaving investors with little information about any recovery efforts made by regulators.

Guo’s comments represent the first public statement by a major regulator in recent months addressing the investor losses from P2P platforms.

Regulators have indeed sought to resolve P2P loans with help from China’s four state-owned asset management companies, but the so-called ‘big-four’ are said to have little inclination to get involved given their already bloated balance sheets after years of accumulating bad debt from the banking sector.

Recent reports indicate the CBIRC was accepting applications from local asset managers looking to focus on resolving bad P2P loans. Multiple companies were said to have applied.

According to Guo, the crackdown on the P2P sector has had the desired impact and it will be eased by the end of the year. This could provide an important financing channel for SMEs, amid warnings of mounting bad loans in the banking sector.

Yet, the P2P lending crackdown is clearly still underway. Just last month, the SCMP reported that authorities were investigating microloans provider Weidai (Hangzhou) Financial Information Service for alleged illegal fundraising activities.

At the time, authorities asked investors to cooperate with the investigation, saying illegal gatherings were prohibited and claims needed to be expressed in a reasonable and rational manner.

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