P2P Jungle Goes Pear Shaped in China
The P2P lending sector is China is reportedly worth around $190billion… and falling.
The sector has been in crisis management mode for the last month, as a run on P2P lenders is literally causing P2P lenders to run. People have been turning up at the offices of some of these companies only to find the doors locked and the place empty. What, why, and could it happen here?
Firstly, the What. “As many as 114 P2P platforms failed from July 1 to July 24, with 14 shutting down without warning, 97 suspending fund withdrawals after facing liquidity problems, and three under official investigation, according to online P2P data provider Wangdaizhijia. In contrast, there were a total of 217 cases for the entire 2017.”
In those three weeks they were folding at a rate of nearly five a day. The total number has fallen from 3000+ several years ago to 2000 in the present day, with some commentators suggesting only a few handfuls of those will still be operational in a few more years. FT
The Why. Peer2Peer was pretty much unregulated in China up until 2016 when the first cull took out thousands of them. The next round of regulation is partly what’s causing the current situation, coupled with and fueled by loss of confidence in the sector. China has a particular style of dealing with financial innovation and digitization. It’s tended to give considerable free reign, to let the market expand, sometimes wildly at scale, then to introduce legislation that crops it back into a more conventional shape. This then grows again, slightly less wild than before, and then another round of regulation further shapes it. And so on. Like topiary. It’s high risk for the lenders, high growth for the sectors, and allows market forces and technologies to do their thing. It’s a bit slash and burn, but it’s definitely effective.
The could it happen here? short answer: No. The FCA predetermines the rules and regulations, and getting and keeping FCA authorization is a long, rigorous, and ongoing process. Our P2P lenders are like topiary being grown into a predetermined and fully guided shape. Safe and nurtured in the quiet leafy gardens of England.