China imposes cap on peer-to-peer loans to rein in runaway ‘shadow banking’ scams

Individuals are barred from borrowing more than 200,000 yuan on each P2P platform, while companies’ loans are capped at 1 million yuan, CBRC says

PUBLISHED : Wednesday, 24 August, 2016, 9:56pm
UPDATED : Monday, 04 September, 2017, 6:41pm

China’s banking regulator has imposed a cap on the country’s peer-to-peer loans, in a long-awaited move to rein in runaway lending by so-called shadow banks and defuse their potential threat to the financial system.

Under the rules, individuals are allowed to borrow a maximum of 200,000 yuan (HK$233,010) each from any one P2P platform, with the total loans per person capped at 1 million yuan.

For companies, the cap is set at 1 million yuan per platform, with a total limit of 5 million yuan per borrower, said Li Junfeng, the China Banking Regulatory Commission’s director of inclusive financing.

The caps were introduced after thousands of P2P platforms sprouted all over China since 2014. In their heyday, these lenders were hailed as financial innovators that combined technology with new-fangled ideas such as crowd sourcing and social network to liberalise financial services.

P2P lending platforms raised more than 400 billion yuan of funds in China as of November 2015, according to the Chinese bank regulator’s data.

Some heroes were soon exposed as villains, after a spate of high-profile cases where P2P platforms were found to be nothing more than scams designed to filch pensioners of their life savings.

As many as 1,000 of the estimated 3,600 P2P platforms that operate in China are found to be problematic, according to the regulator’s data.

In January, high-profile P2P lending platform Ezubao was investigated by police for running a Ponzi scheme that faked 95 per cent of all its online loans. All in, Ezubao collected more than 50 billion yuan from 900,000 peer-to-peer lenders across China.

Chinese financial authorities and police had been cracking down on the country’s shadow banks since April this year, scrutinising their books and practises.

The rules were also a way to license financial institutions that are increasingly making forays into loans collateralized with equity, and bridging loans.

The rules ban P2P companies from taking deposits, providing guarantee for lenders, or raising fund for their own use. P2P platforms are barred from selling wealth management products, or issue asset-backed securities, and must use third-party banks as custodians of investor funds, according to the rules.

Existing P2P platforms will be given 12 months to transit their businesses, starting on Wednesday.

“In the short term, lots of platforms will find it difficult to transit their business,” said’s co-founder and co-CEO Kevin Guo. “The impact will be obvious and large within a year, as many firms will withdraw from the industry due to this rule. “

Still, some in the industry say there’s room for the market to develop, because there’s a dearth of banking and financial products that can serve individual borrowers and small businesses.

“China’s online lending companies are much larger than the rules required as many have been running big volume businesses including bridging loans or equity pledged lending,” said Abner An, co-founder of, a Beijing-based P2P platform.