P2P lend­ing sees grow­ing scru­tiny

China Daily (USA) - - WUZHEN - By SHI JING in Shang­hai shi­jing@chi­nadaily.com.cn

AsChi­naad­vance­sits sup­ply­side struc­tural re­form, a large num­ber of strug­gling fi­nan­cial com­pa­nies will be elim­i­nated, thus ex­pos­ing once-con­cealed on­line fi­nan­cial risks.

Peer-to-peer, or P2P on­line lend­ing plat­forms, re­flect the ex­plo­sion of on­line fi­nan­cial risks. Sta­tis­tics pro­vided by in­de­pen­dent P2P por­tal wdzj.com shows that there were 3,858 P2P in op­er­a­tion at the end of last year, and 1,263 of them had op­er­a­tion prob­lems. Most of these plat­forms promised an ex­tremely high re­turn rate, as much as 10 per­cent an­nu­ally. Mean­while, they il­le­gally es­tab­lished cap­i­tal pools.

Plat­forms which have been re­ported with prob­lems have mostly crossed the red line of il­le­gal fund-rais­ing. The prob­lem is not with on­line fi­nance it­self but rather a lack of su­per­vi­sion, ac­cord­ing to a re­port jointly re­leased by the China Europe In­ter­na­tional Busi­ness School’s Lu­ji­azui In­sti­tute of In­ter­na­tional Fi­nance and the Bei­jing-based In­ter­net Fi­nance In­sti­tute.

In­vestors should take a wait-and-see at­ti­tude to­ward these plat­forms, sug­gests Wang Jun, ad­junct pro­fes­sor of fi­nance at China Europe In­ter­na­tional Busi­ness School.

“Smart in­vestors usu­ally ques­tion the com­pa­nies’ ca­pa­bil­ity to pro­vide in­vestors a much higher re­turn rate than banks do,” he says. “Most P2P com­pany own­ers usu­ally re­ply im­me­di­ately by ex­plain­ing that they­havea­muchlower cost, for they do not have any phys­i­cal branches. There­fore, they can achieve higher ef­fi­ciency and bet­ter­mar­gins, whichthey­later trans­fer to in­vestors,” he said.

But Wang says such sim­ple rea­sons can­not sus­tain P2P com­pa­nies’much­high­er­re­turn rate com­pared to banks. Most P2P com­pa­nies can­not find small and mi­cro-sized en­ter­prises that are will­ing and able to re­turn the loans. There­fore, P2P com­pa­nies give these loans to big com­pany clients.

P2P com­pa­nies used to de­velop new wealth man­age­ment prod­ucts to re­pay tra­di­tional prod­ucts. But this hap­pens only when in­vestors’ con­fi­dence re­mains strong and new in­vestors keep com­ing in. Once a sign of dis­tur­bance or trou­ble ap­pears, Wang says, they are very vul­ner­a­ble.

“At this mo­ment, in­vestors should look at P2P projects in a morepru­dent­way,” headds, not­ing that three years ago there

ad­junct pro­fes­sor of fi­nance at China Europe In­ter­na­tional Busi­ness School

Wang Jun, was al­ways a suc­ces­sor for any highly risky P2P prod­uct over­thrown by an­other in­vestor. Now, he says, if you want to trans­fer­anyprod­uct, knowl­edge that the out­look of this prod­uct is at risk will be wide­spread.

On­line fi­nance be­came a buzzword dur­ing the two ses­sions at the be­gin­ning of this year. Ac­cord­ing­totheRe­por­ton the Work of the Gov­ern­ment, on­line fi­nance will see con­tin­ued growth this year. But more im­por­tantly, the gov­ern­ment will im­pose stricter su­per­vi­sion on the in­dus­try to en­sure a sound and sus­tain­able growth.

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