In China, P2P Insiders Say Regulatory Shortcomings Have Choked Industry

In China, P2P Insiders Say Regulatory Shortcomings Have Choked Industry
A police officer gestures at the photographer as security patrol outside the headquarters of China Banking and Insurance Regulatory Commission (CBIRC) in Beijing, China on Aug. 6, 2018. Thomas Peter/Reuters
Reuters
Updated:

BEIJING/SHANGHAI—Overburdened Chinese regulators have left the peer-to-peer lending (P2P) industry to poorly staffed local governments, according to ex-regulators, threatening the survival of an important credit mechanism once seen as crucial for the country’s economy.

The resulting difficulties, as the industry tries to grapple with pyramid scheme scandals and runaway bosses, underline the struggles China will face as it tries to balance financial risk and innovation.

Although P2P lenders elsewhere in the world have been viewed skeptically because of how they mix mom-and-pop investors and higher-risk loans, in China the sector was seen as helping plug a gap left by larger lenders.

In 2016, P2P platforms in China loaned $61.5 billion, versus a total 12.65 trillion yuan ($1.78 trillion) in loans made by commercial banks, according to central bank data.

P2P protest held in Chongqing, China on Oct. 1, 2018. (The Epoch Times)
P2P protest held in Chongqing, China on Oct. 1, 2018. The Epoch Times

But the number of P2P firms in China has shrunk from 6,000 at their 2015 peak to 708 at the end of August, according to P2P-tracking portal Waidaizhijia, as regulators have struggled to implement new rules.

Lufax, once an industry leader and the best-known name internationally, plans to quit the business entirely after struggling to meet regulators’ requirements.

The People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC)—already struggling to oversee an expanding finance industry—passed the responsibility to provincial governments in 2015, those sources said.

Without the expertise or numbers to confidently set standards, provincial regulators essentially froze, they said.

P2P firms and regulatory sources say that the resulting lack of resources, and standards that differ from province to province, have made it hard to plan.