Online lending sites collapse amid fraud claim

Mainland P2P fugitive fled to HK after his three financing firms went bankrupt, paper says

PUBLISHED : Thursday, 23 January, 2014, 1:19am
UPDATED : Thursday, 23 January, 2014, 3:16am

A suspected mainland fraudster has reportedly fled to Hong Kong after his financing business collapsed, leaving investors with tens of millions of yuan in losses.

The incident comes amid tightening credit in the country's financial system that has raised the likelihood of more business failures and debt fugitives.

"These things are happening every day. After the hype last year over online platforms randomly popping up, we knew this would not be sustainable. There can't be enough people with the sophistication to set up peer-to-peer [P2P] lending in such a short time," said Simon Loong, founder of WeLab, a Hong Kong-based P2P online lending service.

P2P refers to mainly internet-based platforms where investors seeking bank-beating deposit rates can lend to businesses or individuals. According to the China Daily, there are more than 2,000 such platforms on the mainland.

Loong said it was not easy to set up a P2P business, which requires advanced risk management algorithms and strong marketing and financial support.

According to the National Business Daily, the fugitive P2P entrepreneur, Zheng Xudong, ran three lending firms in Shanghai, Shenzhen and Hangzhou and offered to help investors make short-term loans to restaurant owners and art collectors.

The three firms filed for bankruptcy this month after investors became suspicious and asked police to investigate. The report said Zheng had recently entered Hong Kong and investors stood to lose at least 100 million yuan.

In recent months, Beijing has started pushing against this market. In November, the People's Bank of China said it would consider outlawing P2P loan securitisation and place the onus on such platforms to conduct due diligence on borrowers while also requiring third-party custodians to help manage transactions.

"The sector lacks sufficient supervision and disclosures. It involves very high-risk loan business and at times fraudulent activities. We expect more of these cases and a further clampdown on internet-lending platform activities," said Zhang Zhiwei, Nomura's chief China economist.