China regulator orders bailout of peer-to-peer lenders by managers of distressed assets

China’s financial regulator will expand the business scope of the country’s distressed-asset managers, enlisting their help to bail out a corner of the financial system that is in danger of collapsing.

During a Wednesday meeting in Beijing, the China Banking and Insurance Regulatory Commission asked four managers of distressed assets – Huarong, Cinda, Great Wall and Orient – to extend their mandate to non-performing loans owed by peer-to-peer (P2P) lending platforms, according to a source familiar with the matter. The meeting was first reported by Reuters on Thursday.

The bailout comes in the wake of closures of scores of P2P lenders across China this year – their causes range from credit squeeze to mismanagement and outright fraud –that have caused panic and protests by aggrieved investors.

Further Reading: Shanghai savers sound the alarm as more P2P lenders fail to return funds

The government of the People’s Republic is particularly sensitive to public displays of grievance, especially during a time of slower economic growth, a stock market rout and amid a trade war with the US that is not showing any sign of abating.

One solution offered by the regulator was to let Cinda and the remaining three AMCs take over P2P platforms suffering from a credit squeeze, but which have good underlying assets, said the source, who declined to be identified because he is not authorised to speak to the media.