Regulation of peer-to-peer lending a welcome move for financial stability
The new rules need to be matched however with measures to make funding more available through official channels
The mainland banking regulator’s move to rein in peer-to-peer lending, known as the shadow banking system, and defuse a threat to the financial system is long overdue. High-profile scams and collapses have rung warning bells, with experts warning that without closer supervision, P2P lending could become a time bomb. It is therefore good for the health of the system that the China Banking Regulatory Commission has announced new rules imposing caps on individual and company borrowing per platform and overall.
That said, it would be good for an economy battling headwinds if the government also signalled practical recognition of the reality that traditional, conventional banks and finance channels are no longer adequate to finance China’s new economy, particularly demand from the private sector. After all, it is only because of such otherwise unsatisfied demand that P2P financing has become rampant, forcing the authorities to step in.