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China technology

China’s online lending crackdown may see 70 per cent of businesses close

  • Yidai, with about 32,000 lenders, is the latest to close shop after ‘months’ of losses
  • Authorities plan to wind down small P2P lending platforms as part of measures against shadow banking
PUBLISHED : Wednesday, 02 January, 2019, 4:03pm
UPDATED : Wednesday, 02 January, 2019, 4:46pm

The number of Chinese peer-to-peer (P2P) lenders may fall by 70 per cent this year, as the nation intensifies its crackdown on riskier financing.

As few as 300 companies will remain by the end of the year, according to an estimate from Shanghai-based research firm Yingcan Group.

The number of operators dropped by more than 50 per cent to 1,021 in 2018 from a year earlier, Yingcan said, adding that there’s been no new entrants into the market since August.

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Yidai, an online P2P lending intermediary, is the latest to exit the business. The company set up a committee to start refunding its lenders after “months” of losses, Yidai said in statements over the extended holiday weekend.

It has about 32,000 lenders with an outstanding principal balance of 4 billion yuan (US$581 million), and expects to repay them in three-to-five years.

Yidai, which received investment from SoftBank China Venture Capital in 2014, also said shareholders and executives are not allowed to leave the country.

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Yidai and SoftBank did not immediately reply to calls and emails seeking comments.

Chinese leaders are dramatically shrinking a market that spawned the nation’s biggest Ponzi scheme, protests in major cities and life-altering losses for thousands of savers.

Authorities are planning to wind down small- and medium-sized P2P lending platforms nationwide, people with knowledge of the matter had earlier said.

That move is in line with President Xi Jinping’s broader crackdown on shadow banking.

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P2P platforms comprise one of the riskiest and least regulated slices of the shadow banking system in China. The lack of oversight has allowed for world-beating growth, with outstanding P2P loans ballooning from almost nothing in 2012 to 1.22 trillion yuan in December 2017.

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Tougher regulations and rising bankruptcies, however, have spooked investors, and lending on those online platforms has plummeted, according to data from Rong360.com, a provider of information about financing and loan products.

Analysts from China International Capital Corp said they expect the number of P2P lenders to contract to fewer than 200 in three years’ time.