China has a new plan for P2P industry: Small-time lending

IT was once a roughly $150-billion industry—an innovative marketplace where individuals could lend to each other. But after years of fraud, defaults and few investor safeguards, China’s regulators are embarking on a plan to radically transform its peer-topeer (P2P) lenders.

Authorities in Beijing are working with local officials on guidelines that would convert qualified online lenders into small-loan companies, Zhu Shumin, vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC), said Monday. Firms that don’t fulfill current requirements will be pushed to exit the industry, he said, without providing more details.

The changes are the latest moves to rein in, and perhaps kill off, China’s P2P sector. As policy-makers cracked down on financial risk, they zeroed in on the lenders, whose customers were predominantly individual investors who could suffer ruin if things went wrong.

Zhu didn’t say how widely the CBIRC’s plans, which it’s working on alongside the central bank, would affect the industry. Converting P2P platforms into small-loan providers would force them to comply with rules on capital requirements and leverage that other lenders have to follow, said George Xu, an analyst at Moody’s Investors Service.

“It is in line with government policies to rein in the P2P industry and improve transparency,” he said. Decline had already set in for the once-thriving industry. More than 1,200 online lenders have exited the market this year, leaving just 462 platforms, Zhu said Monday. As of September, the value of outstanding online loans was down 48 percent from the beginning of the year, he said.

Alarmed by surging defaults, fraud and investor anger, authorities have been working for years on plans to wind down small- and medium-sized P2P lending platforms nationwide. The lenders attracted heightened scrutiny as part of President Xi Jinping’s crackdown on unsavory behavior throughout the finance industry, including the darkest corners of shadow banking.

Online lending became popular in China after a tightening of bank credit in 2010 followed two years of stimulus spending to counter the global financial crisis. Scant oversight of P2P platforms allowed for massive growth, with outstanding loans ballooning from almost nothing in 2012 to 1.1 trillion yuan ($155 billion) by May 2018.