The current peer-to-peer (P2P) lending crisis in China has caused many middle-class families to suffer huge financial losses.
A man who identified himself as Mr. Li said he lost his investments in Yindou, a P2P platform, after the company’s controller went missing and the platform shut down in July. He recounted, in an interview with the Chinese-language version of The Epoch Times, about when he and about 60 other victims, along with their lawyers, traveled to the Jiangxi Bank to protest.
P2P allows people to lend to each other while earning high-interest rates—higher than those offered by banks. Firms that operate a P2P platform connect yield-hungry investors with cash-strapped individuals or small businesses.
Yindou had a loan balance of 4.4 billion yuan (about $640 million) as of the end of June, according to Yicai, a major Chinese business newspaper. After Yindo suspended its operations in July, the company’s investors were left without the ability to withdraw their investments.
According to Chinese media, Yindou had signed a cooperation agreement with Jiangxi Bank in April 2016, with the bank holding custody of funds collected by Yindou. Jiangxi Bank is a private bank located in Nanchang City, Jiangxi Province; the city’s finance bureau is one of the majority stockholders.
Since the platform closed, Yindou investors have turned to the bank in hopes of collecting their investments back.
Li said that when he and other victims arrived at Jiangxi Bank on Aug. 12 to petition for the return of their investments, they encountered about 120 police officers. Li said that four of the petitioners were arrested by the police, while two others were forcibly sent home.
Li explained that he had invested about 300,000 yuan ($43,645) on behalf of his parents.
“My parents haven’t said anything to me, but I haven’t stopped feeling guilty about it,” he said. “Now I only sleep about two to three hours every day. When I wake up in the middle of the night, I have such a strong feeling of helplessness.”
Li added that he no longer believes that the Chinese authorities will do anything to help the victims.
“I don’t trust this government anymore,” Li said.
Recently, victims of another financial product apparently gone wrong have taken to the streets. This year, a total of 170 private funds, 70 percent of which are private-equity or venture-capital funds, have failed or closed without explanation. This has led to many protests, most notably in Beijing on Aug. 7, where local police turned away protestors before they could make their case to China’s bank regulator, the Banking Regulatory Commission (CBRC).
Many have argued that the Chinese regime is in many ways responsible for the recent crises. In an Aug. 9 article, Radio Free Asia (RFA), citing comments by financial experts, pointed out that many P2P platforms are run by the Chinese authorities.
He Qinglian, a well-known Chinese economist, wrote in an opinion article published on Taiwanese news sites Upmedia in July, that Chinese officials didn’t fulfill their promise in 2015 of enacting measures to regulate the P2P industry. The lack of regulation has resulted in frequent collusion between government officials and financial companies, she wrote.
Additionally, Chinese authorities have been continuously printing currency for the past 27 years, causing serious inflation. That created the consequence of driving many Chinese investors to put their money in more risky investment options, such as P2P, in hopes of reaping investments against the depreciating value of their savings, He wrote.
Meanwhile, China’s M2 money supply, or the total savings of companies and residents, increased more than a hundredfold from 1990 to 2017, according to He, at a rate faster than the growth of GDP. While a steady money supply, or credit, can fuel an economy’s growth, such excessive credit, in relation to the GDP, can fuel bubbles and cause inflation.
In 1990, China’s M2 stood at 1.39 trillion yuan (about $202 billion) while the GDP at the time was $360.8 billion, according to He. By 2017, the M2 had risen to 167.68 trillion yuan (about $24.4 trillion) while the GDP was worth $12.24 trillion.
Tan Zuoren, a human-rights activist in Chengdu, the capital of southwestern China’s Sichuan Province, said in an interview with the Chinese-language The Epoch Times, that the current crisis is a planned disaster.
“The goal of the [crisis] was to weaken the middle-class [in China],” Tan said.