Funds frozen in China P2P cleanup

P2P lender Ezubo vows to cooperate with authorities in probes but says it needs to suspend online operation to ‘protect’ investors from panic withdrawals

PUBLISHED : Thursday, 10 December, 2015, 12:39am
UPDATED : Thursday, 10 December, 2015, 5:46pm

Chinese authorities have frozen 1.1 billion yuan of funds deposited in Citic Bank by peer-to-peer online financing platform Ezubo as part of an investigation into alleged violations of banking norms and illegal fundraising.

Ezubo chairman Din Ning had been taken into police custody, while probes had been launched on the firm’s operation in Beijing, Shanghai, Anhui and Guangdong, Chinese media Caixin reported on Wednesday. But Caixin removed the Chinese version of the story online soon after its publication. The English version is still on the website.

Ezubo is one of the bigger peer-to-peer lenders, with an investor base of 840,000 involving 71 billion yuan of funds sourced online from across the country.

In an effort to calm investors, the company released a statement online through social media Weixin, saying it would fully cooperate with the authorities in the investigations. But it added it needed to suspend its online operation to “protect” investors from panic withdrawals and maintain platform security.

Since the stock market rout in summer, the People’s Bank of China has been trying to rein in the unregulated world of online peer-to-peer lending. The authorities blame these companies for the highly leveraged bets that pushed stocks to stratospheric levels before the crash.

These entities, which operate in a grey area as they fall through the cracks between banking, securities and insurance regulations, have also witnessed bank runs with alarming frequency.

Research platform Wandaizhijia recently reported that about 78 per cent of the peer-to-peer players in China it tags “problematic” disappeared with clients’ money in November. About 1,800 companies are said to be still in operation compared with the 3,796 once registered.

With the regulators turning up the heat, internet lenders are facing new restrictions on sourcing funds, pricing loans, independently managing funds and even in lending.

The central bank has forced them to appoint mainstream banks as custodians to safeguard client funds and imposed a cap of just 5,000 yuan a day on payments online. They are also not allowed to lend at interest rates higher than 36 per cent.

MORE REPORT: After the fall: boost for China’s P2P lending platforms as jittery market investors eye havens

Peer-to-peer platforms focus on lending to businesses that cannot access funds through normal channels, and accordingly charge high rates.

“[Peer-to-peers] are fragmented. It is not in itself a high-margin business as these platforms are reliant on volume. It is only from boosting turnover that they can become scalable,” KPMG director Howhow Zhang told the South China Morning Post in a previous interview.

According to Zhang, online sales of peer-to-peer platforms had become saturated in summer. Some have allegedly become Ponzi schemes of a kind by recruiting youngsters who sell investment products to friends and relatives.