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P2P industry faces capital problems

2014-12-26 13:35 Global Times Web Editor: Qin Dexing

11 platforms in trouble for Dec

Eleven Guangdong-based P2P (peer-to-peer) lending platforms encountered capital chain problems during the period of December 1-24, media reported Thursday, underscoring the high risks in the country's unregulated P2P business.

For this year so far, 50 P2P lending firms have gone bankrupt, news portal nandu.com reported on Thursday.

One of the 11 P2P platforms is Shenzhen-based jinhaoli.net, which imposed a limit for lenders to withdraw money on Tuesday and did not announce an ending date for the limit.

"It's due to a massive outflow of capital that has exceeded the company's deposit reserve," Xie Hongwang, chairman of jinhaoli.net, said on its website on Tuesday.

The nandu.com report claimed jinhaoli.net has provided outstanding loans totaling 80.8 million yuan ($13 million) by Tuesday.

A recent run-up in China's stock market has caused a huge capital outflow from P2P lending companies to the stock market, which is the major reason for the rising capital problems for P2P lending companies, the report said.

During the December 1-25 period, the benchmark Shanghai Composite Index had surged by around 15 percent with large trading volume.

But the surge in the stock market can only be deemed as a short-term factor causing difficulties in the sector, experts said.

In fact, P2P lending companies have faced operational difficulties since last year, Cao Xiao, a professor of finance at Shanghai University of Finance and Economics, told the Global Times on Thursday.

Forty-nine P2P lending firms went bankrupt or encountered capital chain problems in the first 11 months of 2013, Xinhua News Agency reported in November 2013.

P2P lending companies match people who want to invest money with individuals who seek loans, skipping traditional financial intermediaries such as banks.

Due to a lack of regulation on P2P lending platforms and low entry threshold, the industry developed fast in recent years and accumulated huge risks as borrowers invest in very narrow fields with the money and frauds appear from time to time, Cao said.

According to data from Wangdaizhijia, a Chinese P2P lending portal, there were about 1,540 P2P lending companies in the Chinese mainland at the end of November and the turnover is expected to reach 250 billion yuan for 2014.

With the fast development, the total volume of unpaid loans issued by P2P lending platforms hit 89.6 billion yuan by the end of November, 3.34 times higher than the level of last year, media reports said.

Experts said the sector still lacks effective risk control. "A high bankruptcy risk in the industry is expected to continue next year," said Guo Tianyong, a finance professor at the Central University of Finance and Economics, noting it calls the authorities to implement strict supervision in the industry.

The China Banking Regulatory Commission took up responsibility for the sector in April.

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