New P2P rules curb risky online lending

China, with 700 million internet users, is the world's fastest-growing market for internet finance. The industry boom has led to perceptions that the evolution of peer-to-peer (P2P) lending in the country has been too rapid and disorderly, creating a convoluted mechanism that has deviated from its original track of providing convenient financing means where, in its purest form, one individual simply lends money to another. Such criticism was largely fueled by the lack of focused regulatory policies and legally defined limits on the industry's activities.

Official data from the China Banking Regulatory Commission (CBRC) show that, at the end of June this year, 40% of the total 4,127 P2P lending platforms were suffering from operational problems, meaning repayments had ceased, they had been investigated by the police, or the operators simply ran away with investor funds—the most famous case being the alleged Ponzi scheme, Ezubo, which involved more than Rmb50 billion ($7.6 billion) in fraud and over 900,000 affected investors. Meanwhile, outstanding loans issued by P2P platforms in “normal” condition reached Rmb621.3 billion ($93.6 billion) in mid-2016. This is in contrast to 2012, when only 50 financing platforms were in the market, loaning out a total of Rmb3.1 billion to 28,000 borrowers, according to the McKinsey Global Institute.