High yield, low threshold
In recent years, the P2P lending industry has become increasingly attractive to many domestic investors.
"I chose to invest in P2P platforms because they provide higher returns than traditional bank financial products," an investor surnamed Chen in Beijing told the Global Times Friday.
Many of these platforms offer annual returns of 6 percent to 10 percent with announced relatively low risks, Chen said, noting that he would carefully evaluate the risk if the rate is higher than 10 percent.
"The competition in the sector has intensified since 2013 amid doubts about the industry. In order to lower the potential risks to investors, our company tried to establish an open and transparent platform," said a senior employee of a Guangdong-based P2P online lending firm, who declined to be identified.
"For example, our investors can track online where their money is going, and we offer our customers both an e-contract and a paper contract," she told the Global Times on Friday.
Well-managed platforms make up only a small portion of the domestic P2P lending industry, which continues to suffer from persistent problems.
"Because the threshold for entry is so low, there are a lot of platforms that don't have enough capital," said Bian Xiaoyu, a financial analyst with Shenzhen-based CIC Industry Research Center.
Bian said that the absence of a stringent risk-management system and credit mechanism in the sector left many poorly operated firms with massive losses. Some platforms were set up for illegal short-term financial gains, Bian told the Global Times on Friday.
Regulation required
The flood of runaway managers has undermined investor confidence in the industry, experts said. Still, the situation might hasten the government's efforts to improve the industry's underdeveloped regulatory framework.
On July 18, 10 government ministries and industry regulators jointly issued guidelines to support Internet finance, saying that the country will regulate the market and further clarify regulatory responsibilities.
"The guidelines highlight the support of the online financial sector instead of the limitations, and the China Banking Regulatory Commission has already proposed regulatory principles and a direction for P2P lending platforms in many unofficial cases, which can be seen as a directional reference for future regulations," Wu Lulu, a lawyer works in Shenzhen, South China's Guangdong Province, told the Global Times on Friday.
The detailed rules and regulations could require P2P companies to sign agreements on capital deposits with banks, the Securities Daily reported Friday, citing comments from Deng Jianpeng, a professor from Minzu University of China.
"It is possible that the government will roll out detailed regulations for the industry very soon," Bian said.
Given the current P2P investment environment, Wu suggested that investors check the platform's operating entity on its website before investing, and then verify the existence of the company and its actual controllers via the enterprise credit information system of the State Administration for Industry and Commerce.
"The P2P platforms that secure their products though an insurance company or have their capital managed by third party banks are relatively safer,"Wu said.
Development prospects
As an emerging industry, P2P lending has sound prospects because it follows the trend of a booming Internet finance sector, which could help complement the traditional financial markets, said Shen, the analyst from Analysys International.
"P2P platforms are in need of a large amount of capital, thus going public could help them expand their financing channels," Bian said.
Yirendai.com, a Beijing-based online consumer finance provider, filed a registration statement with the US Securities and Exchange Commission (SEC) on November 24, proposing an IPO to raise $100 million, according to a filing on the SEC's website.
Yirendai is the first Chinese P2P lending platform to seek an IPO overseas.
An increasing number of P2P platforms are likely to get listed in the future as investors also expect a more open and transparent investment platform, Bian said.
