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Scams and swindles

Shanghai tightens grip of online lenders as scams increase

The new rule will further squeeze profit margins for China’s growing P2P operators, analyst says

PUBLISHED : Thursday, 01 June, 2017, 8:07pm
UPDATED : Friday, 01 September, 2017, 4:23pm

The Shanghai government has ordered online lending platforms to deposit their money with local banks within six months after they are registered with the local financial authorities, as China strives to root out risks stemming from the burgeoning sector.

Online lending sprouted in China in the late 2000s, plugging the void when China’s banking system underserved individuals and small firms. Chinese regulators have been introducing rules since 2016, after a spate of scams where individuals and pensioners were swindled of their life savings, causing social instabilities.

Apart from transferring lenders’ money to commercial banks, newly setup online lending platforms must hand in detailed information including legal opinions from lawyers and information safety approvals issued by local police, as well as details of the shareholders, the Shanghai Financial Services Office said in a draft rule posted on its website on Thursday.

The office is soliciting public opinions until June 30 on the rule.

The new rule will help accelerate consolidation of the sector and weed out irregularities, market watchers said.

Besides a tighter hand at the setup stage of online lenders, the draft rule also required those platforms which set up in Shanghai to go through proper “know-your-customer” procedure - such as their age, financial conditions, investment experiences, and risk appetites to match customers’ investment needs – as a means to evaluate lenders’ risk management.

“The industry currently focuses more on the risk evaluation of borrowers but lag behind in the risk evaluation and investor education of lenders,” said Yu Baicheng, director of research centre at, a platform tracking the peer-to-peer (P2P) lending sector.

“The strengthened risk evaluation of borrowers can help reduce the mismatch of investors and products.”

The industry currently focuses more on the risk evaluation of borrowers but lag behind in the risk evaluation and investor education of lenders
Yu Baicheng,

The local governments are rolling out detailed administrative measures such the Shanghai draft rule as a follow through to industry guidelines issued last year by the state council and related ministries.

“A key change for players is they could no longer keep a cash pool,” said Abner An, co-founder of, a Beijing-based P2P platform.

“Online lending platforms will become pure information providers,” he said.

P2P lending platforms have become a popular genre in the booming online lending sector. The platforms link clients seeking better yields with cash-strapped borrowers. However, relatively low entry barriers have given rise to scams as some operators made wrong matches between lenders and borrowers, or simply embezzle the money.

Online lending platforms will become pure information providers
Abner An, Daokoudai

In January last year, a high-profile P2P lending platform Ezubao was found running a Ponzi scheme that fabricated 95 per cent of all its online loans, embezzled more than 50 billion yuan from 900,000 lenders across China.

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

China’s banking regulator the China Banking Regulatory Commission (CBRC) introduced caps for lending to individuals and companies, and restrictions to regulate online lending last August, requiring online platforms transfer the capital of lenders to commercial banks.

“Profit margin for online lending will be further squeezed as local governments intensify regulations. Smaller players will be force out, while arbitrage room may appear as rules differ by regions,” said An.