Online lending risks escalate on mainland China amid scandals
Peer-to-peer lending platforms have mushroomed on the mainland, but reports of fraud and huge losses have led to calls for tighter regulation
Online lending based on internet "big data" was touted as offering greater safety and lower costs, but investors lost more than one billion yuan last year due to the collapse of private lending companies on the mainland.
Over 200,000 people lent a total of 105.8 billion yuan (HK$135.4 billion) on the mainland's 800 or so peer-to-peer (P2P) lending platforms last year. Seventy-four of those P2P firms reported "operational difficulties, cash squeezes and even owners running away", with the loss of 1.2 billion yuan of investors' money, according to Shanghai-based Wang Dai Zhi Jia, a P2P industry information provider.
In the most recent scandal, three P2P lending platforms in Hangzhou, Shenzhen and Shanghai - with combined outstanding loans of 231 million yuan - collapsed, with their final owner, Zheng Xudong, running away, the National Business Daily reported on January 21. Police are investigating the case.
"Internet financing platforms lack sufficient supervision and information disclosures, and involve very high-risk loan business and sometimes also fraudulent activities," said Zhang Zhiwei, an economist at Nomura Securities. "More of these cases will occur."
P2P lending firms have mushroomed on the mainland since 2006. They match lenders and borrowers, who are usually owners of small firms. As their activities supported the small private firms that are the victims of the mainland's unbalanced financial ecosystem, regulators had been supportive until recently when defaults surged and sparked concerns over social unrest.
China Chengxin Credit Management, which helps companies and financial institutions assess the creditworthiness of borrowers, has been busy receiving P2P company owners recently, according to Shen Shuangbo, general manager of the Beijing-based company.