Across The Border | China’s tighter P2P rules may trigger unexpected run on deposits
Tighter regulations on China’s peer-to-peer (P2P) lending sector are potentially putting depositors’ money at risk and could even trigger an anticipated run on deposits in March, with many of the lending platforms facing the very real prospect of liquidation, according to market watchers.
Authorities in Beijing are determined to examine the credentials of some 3,000 P2P lending operators and expel any questionable players by March, following a raft of scandals involving at least 100 billion yuan worth of deposits from millions of residents.
Most of the lending platforms involved are unlikely to qualify as legal P2P firms following introduction of a series of tighter regulatory requirements, including the appointment of a custodian bank and full disclosure on the use of deposits, according to regulatory officials and company executives.
It is estimated that only 200 P2P companies will pass the review process undertaken by authorities, with the remaining players forced to close their operations and repay money to depositors.
“The industry is expecting a huge wave of money withdrawals in the first two months of 2017 as investors are wary of risks arising from the potential liquidations,” said Richard Zhu, a senior IT engineer at financial services firm Zillion Fortune. “After all, thousands of companies are unlikely to survive the regulators clean-up campaign.”
The industry is expecting a huge wave of money withdrawals in the first two months of 2017
Failure to pass the regulatory examination won’t necessarily lead to collapses or defaults, but investors hope to get their money back as early as possible to dodge potential risks.