P2P Lending in China: Regulation or Not?


58 billion Yuan ($ 9,5 billion) is the estimated market value of P2P lending in China as of last August. Certainly, a lot smaller than the UK’s or the US’s. However, considering that this value increased almost 90% since January 2014 and that it has already surpassed the value estimates made at the beginning of the year, it is clear that the phenomenon is growing at fast speed.
Nevertheless, the situation for Chinese P2P lending is not yet so rosy as it may appear. In fact, as Crowd Valley reported in this previous article, many Chinese platforms went bankrupt during last months, most likely due to the liquidity squeeze enacted by the Chinese Central Bank at the end of 2013 and also to the intense market competition. The result is that many players left the market, decreasing in this way the lenders’ trust.For P2P lending to establish itself in China “there is need for regulations to be implemented”, Jing Jing told us, a Chinese member of Kapipal’s management team, in an interview we made her at the beginning of the year. Today, almost twelve months after, there are rumors about the possibility that the Chinese regulator would seek to better define the industry by the end of the year, releasing a set of ad hoc regulations.

However which direction  these new rules will take remains unknown and some are worried that, while they could drive some players underground, they would also push others to try to find ways around them to survive. In fact, the sector has been developing recently in a completely unguided manner, with no requirement of any kind. As a consequence platforms have implemented completely different business models, from online to offline P2P lending, from collateralized to uncollateralized loans. This wild and free field has also been a reason of complaint among microfinance companies, which are instead regulated and licensed by the relevant regulator.

It is unlikely that the Chinese regulator will be able to produce a regulation that keeps into account all these different P2P lending realities that have developed so far. And this is why many are afraid that the upcoming rules may be a great pushback for this new financial sector. Although at the moment it is just rumors, we are supportive of the idea  that a set of rules would help the market to establish and grow. Hopefully, though, the regulation won’t be so strict to strangle the great potential of P2P lending in China.

Weinland, D. (2014). P2P lenders await new regulations from Beijing. South China Morning Post.
Image credit to: Masha Krasnova-Shabaeva http://bit.ly/15Mhveo


About the author – Irene TorderaBorn and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.

During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.

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