China Locks Down Financial District As P2P Lending Implodes

China has ordered a lockdown of Beijing’s financial district Monday (August 6) to prevent individuals from protesting a crisis in the peer-to-peer (P2P) lending marketplace.

According to a report in the Financial Times, hundreds of police officers and security guards gathered near the offices of banking and securities regulators, as well as the entrance to the underground train stop for the financial district. Police were checking identity cards of anyone entering the area to prevent organized demonstrations by groups of investors that lost money as P2P lenders went under.

Only a handful of protesters showed up during the morning rush hour. Those that did show up were taken away or placed on buses by the police. With the collapse of the market, many are left wondering why the platforms were able to say they were government approved, and why local authorities couldn’t do more to recover their money.

The shuttering of the peer-to-peer networks is being blamed on a combination of regulatory failures, fraud and the declining debt going to weak borrowers and questionable banks. “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, in a recent Financial Times report.

“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,” Shenglin added.

Leading up to the police action, investors have been withdrawing funds from P2P lending platforms amid a wave of defaults across the industry in China. That, in turn, has caused some P2P lending platforms to collapse. Around 150 online lending platforms have had problems since the start of June — compared to 217 in all of last year. Those problems, cited by research firm Online Lending House, which tracks the P2P industry, include investors being unable to withdraw money, police launching an inquiry into a platform or owners running off with the cash.