The rise, fall and future of P2P lending platforms in China: the role of policy, law and enforcement

Abstract

Financial platforms have been on the rise in China, driven by increasing demand for finance from small and micro enterprises and individuals, and by growth in the supply of funds from retail investors. In 2014, the return for retail investors was five times the bank deposit rate. Financial innovation, including the development of FinTech, has boosted the growth of alternative financing channels and increased access to finance. In 2015, the Chinese government began supporting the development of financial platforms such as peer-to-peer (P2P) lending platforms and equity crowdfunding platforms without a strong regulatory framework in place. However, the growth of platforms while regulation was loose increased risk in the financial market, so stricter policies to regulate financial platforms were then introduced. The new regulation was so strict that many financial platforms did not survive, and even some major financial platforms were in danger. All P2P platforms in China were closed by the end of 2021. This chapter traces the development of financial platforms in China. It discusses the risks posed by such rapid development through systemic risk and investor protection. It then looks at the legal and administrative tools used by the Chinese authorities to control risk and their effect on the future development of FinTech platforms in China.