China’s peer-to-peer lending crisis fuels uproar

The Chinese government is facing the wrath of family investors after hundreds of online lending platforms implode, wiping out their savings.

The outcry highlights a dark corner of China’s financial industry that authorities have allowed to grow rapidly with little oversight. The promises of double-digit returns have attracted people looking for more lucrative places to invest their money than conventional banks.

But a recent central government crackdown in Beijing has helped spark a surge in the number of platforms going bankrupt.

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The crisis has hit people like a construction project manager in Beijing who told CNN he had invested more than 275,000 yuan ($ 40,000) in a site that suddenly closed last month.

“The first reaction is disbelief. I didn’t believe the platform had collapsed… But in the end I had to come to terms with the truth,” the 28-year-old said, refusing to be identified for fear of government reprisals. . He said the amount he lost included his parents’ savings, money he borrowed from friends and funds he planned to use to buy an apartment for himself and his pregnant wife .

The disappearance of the platform with which he invested, Tourongjia.com, is now the subject of a police investigation. A July government notice posted on its website says the president is missing and 13 suspects have been arrested. He advises investors to report their losses to the police as soon as possible. Company phone lines no longer work.

The collapse of peer-to-peer lenders in China has sparked public protests.

“False statements and criminality”

Sites like Tourongjia, known as peer-to-peer lenders, were supposed to provide an alternative source of credit for borrowers like small businesses who had difficulty obtaining loans through the Chinese banking system, which has traditionally favored public enterprises and large or politically connected enterprises.

The Chinese government initially encouraged the growth of the sector. But he “has become a magnet for the misrepresentation and criminality that can be expected in such loosely controlled off-market activities,” said Brock Silvers, managing director of Shanghai-based investment advisory firm Kaiyuan Capital.

Now the Chinese government is trying to clean up the industry with stricter regulations, as part of a broader crackdown on risks in the financial sector. The number of peer-to-peer lenders that closed rose from 28 in May to 218 in July, according to Wangdaizhijia, a company that monitors the industry.

“Regulators … got more serious in trying to crack down on this because they realized it was getting out of hand,” said Andrew Collier, managing director of financial research firm Orient Capital in Hong Kong.

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The construction project manager who spoke to CNN said he believed his investment was safe because Tourongjia appeared to have government backing.

Numerous reports in Chinese state media mention meetings between business executives and local government officials in the eastern city of Hangzhou, where Tourongjia was based. Government officials have visited its offices and even attended fancy banquets.

The Hangzhou city government did not respond to a request for comment.

chinese police officer p2p
Police on Monday called off a planned protest against Beijing’s online lending crisis.

“The law only protects a small group of people”

After the collapse of Tourongjia, there is no sign of compensation for those who lost their money.

“In China, the law only protects a small group of people – not us, the masses,” the construction project manager told CNN.

He and others who have lost their money on similar sites try to bring their grievances to the national authorities, but with little success. A protest scheduled for Monday outside the offices of financial regulators in Beijing was quickly closed by police.

“The government is not going to bail anyone out. I would be very surprised,” Collier said. He predicts that after the current upheaval, the industry will eventually consolidate around larger internet players and banks.

China’s central bank did not respond to a request for comment on the losses from investors. He has previously said he will crack down on bad lenders and urged relevant ministries to help improve “investor rationality on investment, lending and risk.”

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Those who have lost money say they are not giving up, despite the risk of imprisonment or detention.

A 36-year-old healthcare salesman who said he lost about 1.4 million yuan ($ 200,000) with Tourongjia told CNN he expected the protests to continue.

“We have to fight for our rights,” he said. “My life is ruined. Now I’m like a financial refugee.”

– Daniel Shane, Serenitie Wang, Nanlin Fang, Yong Xiong and Steven Jiang contributed to this report.

CNNMoney (Beijing) First published on August 8, 2018: 9:47 p.m. ET

Janet E. Fishburn