China's P2P Lending Crackdown Leaves $115B In Losses

Chinese currency

China’s peer-to-peer (P2P) lending sector, once 6,000 businesses strong, has been reduced to fewer than three dozen as the government tightened regulations, leaving billions in loans unpaid.

Now, Guo Shuqing, chairman of the China Banking Regulatory Commission, the nation’s top banking regulator, said investors have been saddled with more than 800 billion yuan ($115 billion) in debt from the failed platforms, Bloomberg News reported.

Regulators and law enforcement will try their best to recoup the money, he told China Central Television Friday (Aug. 14), per the report.

At one time, the P2P industry issued more than $150 billion of loans from 50 million investors. But the news service reported the sector was plagued by fraud and defaults.

Two of the country’s largest P2P finance providers are Lufax (Lujiazui International Financial Asset Exchange Co. Ltd.) and Dianrong, and they have not been spared the crackdown on financial risk by Xi Jinping, the general secretary of the Chinese Communist Party.

While P2P platforms were touted as an innovative way to match savers with small borrowers, the marketplace has had troubles globally.

Earlier this year, PYMNTS reported China’s P2P lending market was headed for more turbulence in 2020 as more of its popular platforms face potentially being shut down as the government tightens regulations.

The country’s P2P industry, a small portion of overall lending, was a credit source for businesses and consumers who couldn’t obtain loans through China’s traditional banks.

“The increased regulatory and capital requirements for China’s P2P lenders should continue to put pressure on the sustainability of business models across the sector in 2020, leading to further industry contraction,” said Katie Chen, director for non-bank financial institutions at Fitch Ratings, at the time.

This week, Lufax was the latest company to file an initial public offering (IPO) in the U.S. as Chinese firms rush to go public before tough new federal disclosure rules go into effect.

The move comes as Treasury Secretary Steven Mnuchin warned that Chinese firms that want to be listed on U.S. stock exchanges must conform to U.S. auditing standards by the end of next year. That includes opening up their audit records to U.S. regulators, a move that would put the firms in conflict with secrecy laws in China.



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