China Zeroes In On Online Loan Risk

China is expediting the development of regulation aimed at preventing online lending risks and promoting market stability.

According to Reuters, the decision was made after a meeting of the state cabinet’s Financial Stability and Development Commission (FSDC). It also follows the 10 recent measures proposed by a central government work group, designed to stop risks associated with the country’s troubled peer-to-peer (P2P) lending sector.

The size of China’s P2P industry is bigger than in the rest of the world combined, with outstanding loans of 1.49 trillion yuan ($217.96 billion USD). The industry was nearly unregulated and at its peak in 2015, when there were about 3,500 P2P businesses in the country. However, a combination of regulatory failures, fraud and the declining debt has been blamed for the shuttering of 243 online lending platforms since June.

The crisis has caused widespread anger from citizens who are demanding that the government bail out hundreds of the collapsed P2P companies, with many shutting down in lieu of facing tougher regulations. Earlier this month, it was reported that China had ordered a lockdown of Beijing’s financial district to prevent individuals from protesting the issue.

“A fair share of the recent P2P thunderstorm comes from lawless people operating under the guise of internet finance to commit fraud,” said Ben Shenglin, dean of the Academy of Internet Finance at Zhejiang University in Hangzhou. “Beyond that, overall economic conditions have deteriorated, and then you add the impact of the deleveraging campaign, which means some legitimate platforms can’t find a profitable niche.”

While the government claimed that the risks in online lending were under control, the state council committee added in a statement on Monday (Aug. 27) that China will boost reforms that will better serve the real economy, including regulations to “improve the quality of listed companies, reform stock issuance system and broaden long-term and stable funding sources for the country’s capital markets.”