PEER-TO-PEER LENDING

Chinese P2P lender Miniu first to axe margin loans after crackdown by Beijing to tame market

PUBLISHED : Monday, 13 July, 2015, 4:22pm
UPDATED : Monday, 13 July, 2015, 5:00pm

Miniu98.com, one of China’s largest peer-to-peer (P2P) lending platforms, will stop margin lending immediately in response to a recent crackdown on the practice by China's securities regulator, the company said on Monday.

China Securities Regulatory Commission (CSRC) issued a set of directives one day earlier aimed at cleaning up illegal trades.

It also warned brokerages to review trades carefully and not open their systems to firms engaged in illicit businesses.

As fears grow that Chinese investors may use illegal means to borrow so they can bet on the Chinese stock market’s imminent rebound, the CSRC said it would enforce the use of real names and national identification numbers.

This is designed to help stamp out the illegal use of virtual accounts, or those that belong to other people, in a bid to stabilise the market, which shed almost a third of its value in recent weeks.

Although the commission did not specifically mention margin trading, clients of companies like Miniu98.com often receive loans for leveraged stock purchases.

This allows them to trade in subdivided securities accounts via trading platforms connected to brokerages that do not always require them to disclose their true identities, making this a grey market, Reuters reported.

But China's internet regulator has now ordered local authorities and web hosting companies to pull "illegal" online advertisements that offer loans to help people invest in stocks using various accounts, according to state news agency Xinhua.

READ MORE: China's central bank to better regulate internet banking as private lenders start to mushroom

China’s Huatai Securities estimated that about 200 billion yuan (US$32.2 billion) of liquidity in the Chinese market comes from P2P lending, while bank loans account for three times as much. Media reports claim Miniu98 has helped fund around 5 billion yuan of stock investments.

Based in Hangzhou in east China’s Zhejiang province, one-year-old Miniu98.com has attracted heavyweight investors like Wu Yongming, co-founder of China’s e-commerce giant Alibaba, and Hong Tianfeng, former chief operations officer of the technology team at smartphone maker Huawei.

Investors in China's stock markets have already borrowed 5 billion yuan from the company, according to a recent story by the Wall Street Journal.

Since China’s stock market's recent crash, the government has taken a series of rescue actions, including suspending new share issuances and letting domestic brokerages inject 120 billion yuan into the stock market through fund purchases.