China Imposes Tight Regulations on P2P Lending Platforms
China has been tightening regulations on P2P Lending in the past two months amidst a liquidity crisis which led to the breakdown of seventy-one platforms in only 12 days, from July 2 to July 13,.
On July 13th Touzhijia Platform, which is a P2P Lending search engine, had outstanding payments and on the 15th the search engine’s founder announced that he was cooperating with local police to retrieve investors’ deposits.
In addition, Shanghai police have begun investigating two P2P companies, Zibang Investment Holdings alonside Shanghai Puziben Financial, on suspicion of acquiring public funds illegally.
The Results of Tight Regulations
China started enforcing strict regulations on the P2P industry in 2016. And, since then the industry has been under close examination by the Government. Also, Government regulators announced that any unauthorized online wealth management activities will be deemed illegal. This resulted in lenders failing to acquire funds and missing payments, which in turn led to the breakdown of lenders.
According to a Chinese analytic platform, 721 of 2,835 existing P2P companies in China collapsed in the first half of this year. And, only 36 companies were newly founded.
And, according to a Chinese data provider, the capital inflow went down by 77 percent from RMN24.8 Billion last January to RMB5.66 billion this past June.
One of the leading investment banking firms in China, China International Capital, anticipates that in the next three years only 200 P2P lending companies which are 10% of the currently existing companies will survive the tight regulations imposed by the government.