Among Chinese peer-to-peer lending platforms, 896 out of the total of 2595 are confronted with severe problems in operation, 3.26 times the number in 2014, a 2015 annual report published by Chinese consultancy firm YingCan Investment Management Consulting Co. said.
YingCan Investment Management Consulting Co. is an online financing consultancy company with SoftBank Asia Investment Fund (SAIF) as one of its investors. Its 2015 Online Lending Annual Report indicates that 34% of P2P lending platforms face trouble in their operations, despite the number of P2P lending platforms in China increasing from 1,575 in 2014 to 2,592 in 2015.
This astonishing proportion echoes a case brought to light last weekend in China. Ezubao, an online financing platform, is suspected of illegally collecting over RMB 50 billion (USD 7.6 billion) from approximately 900,000 investors by fabricating investment projects. Ding Ning, the chairman of Ezubao’s parent company Yucheng, has been arrested, along with 20 others.
“As far as I know, 95% of projects on Ezubao are fake,” Yong Lei, Director of Risk Control at Yucheng, told reporters at Xinhua News Agency. According to him, the company bought information from other companies to set up fake profiles on Ezubao’s platforms under Ding’s orders.
The fake company profiles were then packed into investment projects with high returns from 9% to 14.6% on Ezubao’s platform. The money collected wasn’t put into investments but spent on marketing and operations and misused by high executives in the company. According to police investigation, Ding alone spent over RMB one billion (USD 154 million) on purchasing real estate as gifts for other people.
Ezubao was just one case among the many reported in 2015. Apart from the 1% of platforms that are officially under investigation like Ezubao, problems with Chinese P2P lending platforms in 2015 also include business suspension, trouble cashing out for investors and vanishing bosses, as stated in YingCan’s 2015 report.
Considering the massive legal cases, the Chinese government is leaning toward strict regulations for P2P lending platforms. China’s central bank the People’s Bank of China co-issued Guidelines on Promoting the Healthy Development of Internet Finance last July, along with nine other financial supervision organizations. The guidelines limited the role of P2P lending platforms in China to serve only as information agencies between lenders and borrowers.
Under tightening regulations and constant negative press, established P2P lending platforms in China are attempting to rebrand themselves as online financing platforms. Lu.com, China’s biggest P2P lending platform backed by Ping An Group, merged their P2P lending business with its parent company’s other lending business into an independent company to secure its own listing plan.
The U.S. stock market also seems to have its doubts over the profitability of P2P lending companies from China. YiRenDai, a Chinese P2P lending platform, went public in the U.S. last December but soon faced a sharp drop in its stock price, falling below its debut price. As the first Chinese P2P lending company listed on the U.S. stock market, YiRenDai’s performance is even more cause for concern for Chinese fintech practitioners.
(Featured image from Flickr/Japanexperterna)
