In a separate statement posted on its Weibo account addressed to Weidai (Hangzhou)’s online borrowers, the bureau urged them to “proactively” repay their loans. Those who fail to do so on time will be included in the government’s “social credit system blacklist” which could block them from future purchases for daily necessities, access to public transport and bank loans.

Emails and phone calls to the company requesting comment on the investigations were not answered.

The latest investigation comes after a string of scandals in the sector in the past few years that have wiped out the savings of millions of Chinese investors attracted by higher returns compared to bank deposits. P2P lending is a form of shadow banking where loans can be made through an online platform outside traditional institutions.

P2P: China’s once-booming lending industry must close within two years, government notice says

Weidai (Hangzhou), operator of one of China’s largest online car-backed financing platforms, is controlled by Weidai which listed on the New York Stock Exchange in late 2018. It had a P2P market share of 35 per cent in 2017, according to Weidai’s 2018 annual report. Most of its borrowers were owners of small enterprises, while its funding came mostly from small investors and institutional partners.

Weidai’s shares have lost 90 per cent of their value since they peaked at US$13.2 in February last year. They closed at US$1.33 last Thursday.

However, tighter regulation has seen the number of P2P services providers plunge to 343 in 2019 from 2,680 in 2016. Gansu, Hebei, Hunan, Chongqing and Sichuan were among the provinces that ordered a complete shutdown of P2P lending last year.

Last November, Beijing ordered all existing P2P platforms to meet new regulatory requirements within two years. This includes a minimum registered capital level of 1 billion yuan to receive an online microlending licence to operate nationwide – the same as commercial banks.

As a result, Weidai (Hangzhou) announced its exit from the online lending intermediary service business by June 30 this year, saying it would rely on its institutional partners for funding. In its annual filing to the NYSE in June, it said that investors in its investment products that funded its lending business would be repaid when they become due.

The company’s net profit plunged 65 per cent to 253.6 million yuan last year from 2018, as provision against potential loans delinquencies surged 65 per cent to 1.24 billion yuan. Revenue slid 14 per cent to 3.9 billion yuan.

China’s Hebei province imposes total ban on P2P platforms

Founded in 2011, it was China’s first company to provide car loans adopting a global positioning system-enabled mobile app to detect fraud and take vehicles into custody. The practice has since become industry standard, replacing the traditional model of lenders keeping cars in custody to back loans.

The car-backed loans it facilitated last year had an average principal of 59,615 yuan and an average tenure of 22 months, and 60 per cent of its customers were repeat borrowers, Weidai said. It charged annualised interest rates of 20 to 36 per cent.

“The pandemic could be the last straw on the camel’s back for the 12-year-old P2P sector,” they wrote.