China’s Online Peer-to-Peer (P2P) Lending Platforms

Abstract

China’s online peer-to-peer (P2P) lending industry first emerged in 2007 and grew at frenetic speed between 2012 and 2015 in the shadow of the banking industry. The lack of market entrance thresholds, sound regulations and regulatory oversight led not only to an unreined and rapid proliferation of online P2P lending platforms but also to a surge in the number of problematic platforms as a result of their lack of experience in managing such businesses, their mismanagement, and/or their fraudulent practices. The Chinese government thus faces a huge challenge as it strives to resolve such distortions which jeopardise this industry as an alternative source of financing to private small and medium enterprises (SMEs). These SMEs are important economic entities but constantly encounter difficulty in borrowing from the traditional banking channels which have preferred lending to big players such as state-owned and public-owned enterprises. The online P2P lending platforms are not expected to replace the traditional banking channels, but are financial intermediaries with a promising potential in addressing the financing vacuum long faced by SMEs. This chapter examines the development of the online P2P lending industry, its borrowers and lenders, its problem platforms and the legislative and regulatory inadequacies and reforms.