China struggles to defuse anger over P2P lending crisis

BEIJING: Peter Wang was asleep at his home in Beijing last Monday when police officers arrived before dawn to detain him, saying he had helped organize a protest planned for later that day. Across the city, others who had lost money investing in China’s online peer-to-peer (P2P) lending platforms - including some who had travelled from as far away as Shandong and Shanxi provinces - got similar visits from police.

By the time they were released, the demonstration they had planned using social media chat groups had fizzled amid a massive security response around the China Banking and Insurance Regulatory Commission (CBIRC) headquarters in the heart of Beijing’s financial district. Instead of demanding that the government bail out the hundreds of collapsed P2P companies, those who made it to the protest area were forced onto buses and carted away to Jiujingzhuang, a holding center for petitioners on the outskirts of Beijing, according to two P2P investors.

“Once the police checked your ID cards and saw your petition materials, they knew you are here looking to protect your rights. Then they put you on a bus directly,” said Wang, who works at an auto repair shop. He joined a separate, smaller protest in a different part of Beijing after

his detention. “There was no channel to solve any problems. All they care about was preventing any disturbance.” The size of China’s P2P industry is far bigger than in the rest of the world combined, with outstanding loans of 1.49 trillion yuan ($217.96 billion), according to data tracker p2p001.com, run by the Shenzhen Qiancheng Internet Finance Research Institute.

P2P, in which platforms gather funds from retail investors and loan the money to small corporate and individual borrowers, promising high returns, started flourishing nearly unregulated in China in 2011. At its peak in 2015, there were about 3,500 such businesses.

But after Beijing began a campaign to defuse debt bubbles and reduce risks in the economy, including the country’s enormous non-bank lending sector, cracks began to appear as investors pulled their funds.

Since June, 243 online lending platforms have gone bust, according to wdzj.com, another P2P industry data provider. In that period, the industry saw its first monthly net fund outflows since at least 2014, the data provider said. The latest burst of anger, which led to the planned protests, flared up ahead of a June 30 deadline for companies to comply with new business practice standards, which are still being finalized.

Many of them shut down rather than face tougher regulations, Zane Wang, chief executive of online micro-loan provider China Rapid Finance, told Reuters.

That caused panic in the broader market. Investors tried to pull funds from P2P companies, causing liquidity problems for many smaller operators, Wang said, although larger ones are faring better. “Some platforms might become a winner out of this, and some platforms, probably a large portion of the platforms, might not be able to make it,” he said.

China’s propaganda machine has swung into action as Beijing seeks to reassure people that the Chinese economy and financial markets are healthy despite a trade war with the United States and steep declines in the value of stock prices and the yuan. No mainland Chinese media - official mainstream papers or more independent-leaning publications - reported the attempts to protest in China’s capital.

Many would-be protesters were forced to give fingerprints and blood samples and prevented from travelling to Beijing. Some were even removed from Beijing-bound trains ahead of the protests, said a Shanghai-based P2P investor who lost 1.3 million yuan. She declined to be named out of fear for her safety. Even after the demonstrations were effectively snuffed out, hundreds of security personnel patrolled around CBIRC’s office, highlighting authorities’ sensitivity to any form of social instability.

The CBIRC did not respond to an emailed request seeking comment. The Ministry of Public Security did not respond to a fax seeking comment. On Sunday, state media outlet Xinhua reported that the government has proposed 10 measures to reduce risk in the P2P sector, including a strict ban on new P2P companies and online finance platforms, and a blacklist under China’s social credit rating system for those who don’t repay their loans. —