China imposes limits on P2P platforms amid fraud concerns

Added 29th August 2016

China has imposed new lending limits on the country’s increasingly popular peer-to-peer (P2P) platforms in a bid to curb risks following the collapse of the industry’s largest lender Ezubao last year.

China imposes limits on P2P platforms amid fraud concerns

Under the new regulations, which take effect immediately, individuals are restricted to borrowing up to CNY200,000 (£22,734, $30,038, €26,633) from a single P2P platform and CNY1m total from different P2P lenders.

For companies, the caps are CNY1m on a single platform and CNY5m from the whole industry, the China Banking Regulatory Commission (CBRC) said in Beijing on Wednesday.

The P2P lenders are also barred from pooling investment and reselling collected funds as wealth-management products and must appoint qualified banks as custodians and improve information disclosure, the regulator said.

China's P2P and online finance industry has seen explosive growth in recent years, with loans surging to CNY56.8bn ($98.7 billion) at the end of July – 20 times CNY30.9bn taken out in January 2014, according to industry data provider Wangdaizhijia.

Vulnerable to fraud

Until now, the loosely-regulated industry has been seen as a way to promote alternative sources of funding for consumers and small businesses, which could be used to finance anything from weddings to high-yield lending for risky property or mining projects.

However, Chinese authorities are becoming increasingly concerned about the level of defaults and fraud among the nation’s 2,349 online lenders.  

Data from the banking regulator revealed that as of June more than 40% of all platforms had problems.

Ponzi scheme

In December last year, Chinese authorities exposed the country’s biggest Ponzi scheme after P2P lender Ezubao was suspected of defrauding 900,000 investors of around $7.6bn.

Investors were offered returns far exceeding market norms, with expected annual yields on Ezubao’s six products between 9% and 14.6%. However, more than 95% of the projects allegedly financed by the scheme were found to be fake. 

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Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

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