China Ramps up Enforcement Against P2P Lending

Soon after, a steady stream of defaults began to make the headlines. In some cases the collapse was due to poor risk management, but in many cases it was old-fashioned fraud.

In 2016, China's biggest P2P lender at that time, Ezubao, collapsed in a $9 billion fraud, leaving about 900,000 of its investors out of pocket. In January of this year, Shanghai-based Yidai announced it was defaulting on loans, and that it will need between three to five years to repay 32,000 investors an outstanding principal balance of Rmb4 billion. Days after, Xinhehui, a Hangzhou-based P2P operator, said that it would not be meeting its Rmb860 million repayment to 16,000 investors.

In late 2017, the China Banking Regulatory Commission (now the China Banking and Insurance Regulatory Commission, or CBIRC) introduced regulations requiring the registration of all platforms aimed at preventing P2P platforms from pooling funds from investors, or providing any form of credit services. In August 2018, the Internet Lending Financial Risk Management Working Leadership Group, along with the CBIRC, jointly released a detailed checklist of 108 queries that P2P lenders would be subjected to. Since then, authorities have steadily ramped up enforcement and the closed down numerous recalcitrant platforms.

In late February 2019, the Chinese police announced that they had arrested 62 people from 16 countries and regions, and froze about $1.5 billion in assets linked to 380 P2P lending platforms. The arrests and freezing of assets were the result of nearly eight months of an operation launched by China's Ministry of Public Security codenamed 'Fox Hunt' that spanned several countries including Thailand and Cambodia.

At the same time, a domestic crackdown has also been taking place, with authorities investigating small- and medium-sized P2P lending platforms nationwide. In November last year, Hunan province shut down 53 P2P lenders of which about half were zombie platforms that had failed as long as three years prior.

Regulators in Shenzhen have also been in talks with smaller P2P platforms that have outstanding lending balances of less than Rmb100 million, and have asked them to voluntarily commit to closure, according to a Caixin report. According to P2Peye.com, a P2P lending platform tracking website, of the 139 operating P2P platforms in Shenzhen, 58 have less than Rmb100 million in outstanding loans.

Authorities in Hangzhou have already shut down a group of smaller platforms that had less than Rmb100 million in loans.

Meanwhile in Beijing, any P2P platforms with lending balances of less than Rmb50 million will not have their licenses renewed, Caixin reported. This could mean that about 90 percent of the capital's P2P lenders will be ordered to close.

According to Huo Xuewen, chief of Beijing's Financial Supervisory Bureau, the city authorities will use the guidelines issued last August in guiding their closure decisions. The government is expected to complete a full regulatory inspection by the end of March, said Huo.

The impact of the crackdown has been to steadily reduce the number of platforms operating. Numbers had fallen to only 1,872 in May 2018, and further shrunk to 1,009 in January of this year. According to Shanghai-based research firm Yingcan Group, the number could further drop to only 300 by the end of 2019.