Beijing struggles to defuse anger over China’s P2P lending crisis

BEIJING (Reuters) – Peter Wang was sleeping at his home in Beijing last Monday when police arrived before dawn to arrest him, saying he helped organize a protest scheduled for later today.

Across town, other people who had lost money investing in China’s online peer-to-peer (P2P) lending platforms – including some who had traveled from as far as the provinces from Shandong and Shanxi – have received similar visits from the police.

By the time they were released, the protest they had planned using focus groups on social media had collapsed amid a massive security response around the headquarters of the China Banking Regulatory Commission and insurance (CBIRC) in the heart of Beijing’s financial district.

Instead of demanding that the government bail out the hundreds of collapsed P2P companies, those who went to the protest zone were forced to board buses and taken to Jiujingzhuang, a detention center for petitioners on the outskirts of Beijing, according to two P2P investors.

“Once the police checked your ID cards and saw your petition material, they knew you were here to protect your rights. Then they put you right on a bus, ”said Wang, who works in an auto repair shop. He joined a separate, smaller protest in another part of Beijing after his detention. “There was no channel to solve the problems. All they care about is avoiding disruption.

The size of China’s P2P industry is much larger than the rest of the world combined, with outstanding loans of 1.49 trillion yuan ($ 217.96 billion), according to data tracker p2p001. com, managed by the Shenzhen Qiancheng Internet Finance Research Institute.

P2P, in which platforms raise funds from retail investors and lend money to small businesses and individual borrowers, promising high returns, has started to flourish in an almost unregulated way in China. in 2011. At its peak in 2015, there were approximately 3,500 such companies.

But after Beijing launched a campaign to defuse debt bubbles and reduce risks to the economy, including the country’s huge non-bank lending sector, cracks began to appear as investors withdrew their funds. .

Since June, 243 online lending platforms have gone bankrupt, according to wdzj.com, another data provider in the P2P industry. During that time, the industry saw its first monthly net outflows since at least 2014, the data provider said.

The latest outburst of anger, which led to the planned protests, erupted ahead of the June 30 deadline for companies to comply with new standards of business practices, which are still being finalized.

Many of them have closed their doors rather than facing more stringent regulations, Zane Wang, managing director of online microcredit provider China Rapid Finance XRF.N, told Reuters. This caused panic in the market at large. Investors have attempted to withdraw funds from P2P companies, causing liquidity problems for many smaller operators, Wang said, although the larger ones fare better. “Some platforms might come out as winners, and some platforms, probably a large chunk of platforms, might not be able to achieve this,” he said.

The Chinese propaganda machine has kicked in as Beijing seeks to reassure people that China’s economy and financial markets are healthy despite a trade war with the United States and a sharp drop in the value of stocks and yuan.

No mainland Chinese media – mainstream official newspapers or more independent publications – reported the attempted protests in the Chinese capital.

FILE PHOTO: A policeman waves to the photographer as a security patrol outside the headquarters of the Chinese banking regulator, to prevent planned protests by investors who have lost money due to the collapse of lending platforms in peer-to-peer (P2P) line, in Beijing, China on August 6, 2018. REUTERS / Thomas Peter / File photo

Many would-be protesters were forced to give their fingerprints and blood samples and prevented from reaching Beijing. Some were even taken off trains to Beijing 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 protests were effectively quelled, hundreds of security personnel patrolled around the CBIRC office, underscoring the authorities’ sensitivity to any form of social instability.

The CBIRC did not respond to an email request for comment. The Department of Public Security did not respond to a fax seeking comment.

State media Xinhua reported on Sunday that the government had proposed 10 measures to reduce risk in the P2P sector, including a strict ban on new P2P businesses and online funding platforms, and a blacklist under the Chinese social credit rating system for those who do not. t repay their loans.

DISORDERING CLEANING

The peer-to-peer loan was started by companies like LendingClub LC.N in the United States, but in China, it has grown on a massive scale as businesses have relied on the government’s desire for financial innovation to serve credit-strapped private small and medium-sized businesses.

The industry has grown too quickly for regulators to keep pace.

Many P2P platforms lend to customers who might be considered too risky for a commercial bank. This has sometimes led to liquidity crises, when too many investors ask for their funds at the same time if the loans appear to be plummeting.

There have also been cases of outright fraud, the best known being Ezubao – a $ 7.6 billion Ponzi scheme involving more than 900,000 investors.

More than 100 companies listed on the Chinese stock markets are involved in P2P transactions, and 32 of them own more than 30% of a P2P company, according to a July research report from CITIC Securities.

China has extended a separate June 30 deadline for an online finance clean-up campaign by two years. But rather than calm things down, it created more uncertainty, market watchers said.

CITIC Securities estimated that as part of the cleanup campaign, only about 100 out of 1,836 platforms would be able to meet current regulatory standards and obtain a license. Less than 50 would thrive.

Experts say large companies would likely benefit from tighter regulation. But so far, listed companies in the industry have seen their stock prices take a hit.

The shares of some of the Chinese P2P companies listed in the United States plunged. China Rapid Finance shares have lost 73% so far this year, while Yirendai YRD.N fell 71 percent. PPDai PPDF.N fell 44%, and Hexindai HX.O 27 percent.

PPDai officials declined to comment.

In a press release, Hexindai said it would improve risk management “and further reduce credit risk.”

Tang Ning, founder and CEO of CreditEase, the majority owner of P2P lending platform Yirendai, told Reuters he feared the “industry-wide panic” was escalating.

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 businesses will be affected, both illegal and compliant. Everyone is going to lose and this is a situation that no one wants to see, ”Tang said. “Small businesses will lose an important, if not the most important, source of funding. This not only harms 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 lifetime savings, which they planned to use to buy a house at the end of the year – in two P2P platforms that shut down.

They did not get anything back from their investment.

“We are financial refugees, not gangsters. The only thing we want is our money back, at least some of it, ”Wang said.

Reporting by Shu Zhang and Elias Glenn; Writing by Elias Glenn; Editing by Gerry Doyle

Janet E. Fishburn