China strug­gles to defuse anger over P2P lend­ing cri­sis

Kuwait Times - - Business -

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. —

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