Insight: Beijing struggles to defuse anger over China's P2P lending crisis
12/08/2018 07:44
By Shu Zhang and Elias Glenn
BEIJING, Aug 12 (Reuters) - Peter Wang was asleep at his
home in Beijing last Monday when police officers arrived before
dawn to detain him, saying he had helped organise a protest
planned for later that day.
Across the city, others who had lost money investing in
China's online peer-to-peer (P2P) lending platforms - including
some who had travelled from as far away as Shandong and Shanxi
provinces - got similar visits from police.
By the time they were released, the demonstration they had
planned using social media chat groups had fizzled amid a
massive security response around the China Banking and Insurance
Regulatory Commission (CBIRC) headquarters in the heart of
Beijing's financial district.
Instead of demanding that the government bail out the
hundreds of collapsed P2P companies, those who made it to the
protest area were forced onto buses and carted away to
Jiujingzhuang, a holding centre for petitioners on the outskirts
of Beijing, according to two P2P investors.
"Once the police checked your ID cards and saw your petition
materials, they knew you are here looking to protect your
rights. Then they put you on a bus directly," said Wang, who
works at an auto repair shop. He joined a separate, smaller
protest in a different part of Beijing after his detention.
"There was no channel to solve any problems. All they care about
was preventing any disturbance."
The size of China's P2P industry is far bigger than in the
rest of the world combined, with outstanding loans of 1.49
trillion yuan ($217.96 billion), according to data tracker
p2p001.com, run by the Shenzhen Qiancheng Internet Finance
Research Institute.
P2P, in which platforms gather funds from retail investors
and loan the money to small corporate and individual borrowers,
promising high returns, started flourishing nearly unregulated
in China in 2011. At its peak in 2015, there were about 3,500
such businesses.
But after Beijing began a campaign to defuse debt bubbles
and reduce risks in the economy, including the country's
enormous non-bank lending sector, cracks began to appear as
investors pulled their funds.
Since June, 243 online lending platforms have gone bust,
according to wdzj.com, another P2P industry data provider. In
that period, the industry saw its first monthly net fund
outflows since at least 2014, the data provider said.
The latest burst of anger, which led to the planned
protests, flared up ahead of a June 30 deadline for companies to
comply with new business practice standards, which are still
being finalised but could include bank custodianship of investor
funds and tougher disclosure requirements.
Many of them shut down rather than do so, Zane Wang, chief
executive of online micro-loan provider China Rapid Finance
XRF.N , told Reuters.
That caused panic in the broader market. Investors tried to
pull funds from P2P companies, causing liquidity problems for
many smaller operators, Wang said, although larger ones are
faring better.
"Some platforms might become a winner out of this, and some
platforms, probably a large portion of the platforms, might not
be able to make it," he said.
China's propaganda machine has swung into action as Beijing
seeks to reassure people that the Chinese economy and financial
markets are healthy despite a trade war with the United States
and steep declines in the value of stock prices and the yuan.
No mainland Chinese media - official mainstream papers or
more independent-leaning publications - reported the attempts to
protest in China's capital.
Many would-be protesters were forced to give fingerprints
and blood samples and prevented from travelling to Beijing. Some
were even removed from Beijing-bound trains ahead of the
protests, said a Shanghai-based P2P investor who lost 1.3
million yuan. She declined to be named out of fear for her
safety.
Even after the demonstrations were effectively snuffed out,
hundreds of security personnel patrolled around CBIRC's office,
highlighting authorities' sensitivity to any form of social
instability. urn:newsml:reuters.com:*:nL4N1UX3XX
The CBIRC did not respond to an emailed request seeking
comment. The Ministry of Public Security did not respond to a
fax seeking comment.
MESSY CLEAN-UP
Peer-to-peer lending was pioneered by firms like LendingClub
LC.N in the United States, but in China it has expanded on a
massive scale as firms piggy-backed on the government's drive
for financial innovation to serve credit-starved small and
mid-sized private companies.
The industry expanded too fast for regulators to keep up.
Many P2P platforms lend to customers that might be deemed
too risky for a commercial bank. That has in cases led to
liquidity crises, when too many investors demand their funds at
once if loans appear to be going south.
There have also been cases of outright fraud, the most
well-known being Ezubao - a $7.6 billion Ponzi scam involving
more than 900,000 investors. urn:newsml:reuters.com:*:nL4N1UX3XX
More than 100 companies listed in China's domestic stock
markets are involved in P2P operations, and 32 of those own more
than 30 percent of a P2P company, according to a July research
report by CITIC Securities.
China extended by two years a separate June 30 deadline for
an online finance clean-up campaign. But rather than calming
matters, it created more uncertainty, market watchers said.
CITIC Securities estimated that under the clean-up campaign,
only about 100 platforms out of 1,836 would be able to meet even
today's regulatory standards and obtain a license. Less than 50
would thrive.
Experts say larger companies would probably benefit from
firmer regulation. But for now, listed companies in the industry
have seen their share prices take a beating.
Shares of some of the Chinese P2P companies listed in the
U.S. have plunged. China Rapid Finance shares have lost 73
percent so far this year, while Yirendai YRD.N has slumped 71
percent. PPDai PPDF.N has dropped 44 percent, and Hexindai
HX.O 27 percent.
Officials with PPDai declined to comment.
In a news release, Hexindai said it would improve risk
management "and further reduce credit risk."
Tang Ning, founder and chief executive officer of
CreditEase, the majority owner of P2P lending platform Yirendai,
told Reuters that he was concerned that the "industry-wide
panic" would escalate.
He urged regulators to "act with a sense of urgency" to
protect good P2P companies while punishing bad players to avoid
harming China's financial system and economy.
"Otherwise, it will be 'winter' for the industry. All
companies will be hit, both illicit and compliant. Everyone will
lose and that's a situation no one wants to see," said Tang.
"Small businesses will lose an important, or the most important
source of funding. That's not only hurting the financial system
but also the real economy."
For Wang, the Beijing investor, the pain is acute. He and
his family had invested 7 million yuan - their life savings,
with which they had planned to use to buy a home at the end of
the year - in two P2P platforms that have shut down.
They recovered none of their investment.
"We are financial refugees, not mobsters. The only thing we
want is to get back our money, at least a portion of it," said
Wang.
($1 = 6.8360 Chinese yuan renminbi)
(Reporting By Shu Zhang and Elias Glenn; Writing By Elias
Glenn; Editing by Gerry Doyle)
((shu.zhang@thomsonreuters.com; +86 10 6627 1271; Reuters
Messaging: shu.zhang.thomsonreuters.com@reuters.net; follow me
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