China's peer-to-peer lending industry should be more cautious on lending money to "shadow lenders" for stock investment as the recent stock market rout highlighted the risks for investors, industry officials said yesterday.
The government is set to tighten regulations over P2P lending sites' ties with lenders in the gray market as these sites offer investors capital to invest in stocks with high leverage.
"It's a gray zone in the Chinese market because there are no laws over such lending," said Kevin Guo, co-founder of Shanghai-based P2P lender Dianrong.com. He added that thousands of investors were severely hit in the recent stock market rout.
The National Internet Information Office, the regulator for the industry, also said yesterday that it will ban online advertising and promotion of money lending services for stock investors after China's benchmark stock market index fell over 30 percent within 10 trading days last month.
At least 60 P2P firms offer money for shadow lenders, up from 15 P2P firms last year.
In the first half of this year, over 372 P2P lenders were found to suffer various problems and half of them shut unexpectedly with the loss of huge sums of investors' money.
To meet the challenges, China is expected to improve its credit system nationwide to control risks involving P2P lenders.