Move can help control industry chaos: experts
The central government has listed a string of restrictions for domestic peer-to-peer (P2P) online lending platforms in a document published on Thursday, in an effort to curb risks in the industry.
Experts said the plan would help standardize the industry and prevent P2P platforms from indulging in excessively risky business.
The plan, published by the State Council, China's cabinet, aims to deal with risks in the domestic Internet finance sector, and also includes requirements for business areas other than P2P, such as third-party payment.
"The launch of the plan is of great significance. It shows that the chaos in China's Internet finance sector will be rectified," Yang Dong, a professor at the law school under the Renmin University of China, told the Global Times on Thursday.
Huang Zhen, director of the Financial Law Research Institute at the Beijing-based Central University of Finance and Economics, said that the plan is not meant to crack down on the Internet finance industry in general; instead, it aims to help the good companies by driving out the bad ones.
Crack down on P2P chaos
In the plan, the government listed a number of "restricted businesses" for domestic online P2P service providers, such as illegal fundraising, setting up capital pools and false advertising. It also prohibited these companies from engaging in financial business like asset management and share transfers without first getting approval from the authorities.
"Setting these 'forbidden zones' will actually protect P2P websites, as these are the areas where risks are likely to blow up in a dangerous way," Huang told the Global Times on Thursday, adding that P2P platforms must learn to search for business opportunities within the legal framework.
The new restrictions have been announced at a time when China's P2P trading boom has led to a big increase in risks. Hundreds of domestic P2P websites were found to be dubious during investigations carried out by the Ministry of Public Security, the Southern Metropolis Daily reported in May.
According to a report from youth.cn in September, Beijing-based P2P website Hengchang was reported to have illegally set up capital pools for lending purposes.
"China's real economy is weakening, which is forcing investment capital to flow to the lending sector for quick returns. That's why risks are increasing," Zhao Yao, a research fellow with the Research Center for Payment and Settlement under the Chinese Academy of Social Sciences, told the Global Times on Thursday. He also noted that many employees in China's P2P industry are not experienced enough.
The plan also requires P2P websites to deposit customers' funds with a third-party institution in order to guarantee their safety.
Dai Chenqiu, who used to work as an IT developer for a Shanghai-based P2P website, said that most mainstream P2P companies in China have already adopted the fund trusteeship system, as required by the government.
"However, risks are still there. For example, if the borrower breaks his promise, the P2P platform might not be able to provide compensation to the lender," Dai told the Global Times on Thursday.
According to Zhao, a qualified P2P platform should make sure that the information disclosed to the lender and the borrower is equivalent. "Few P2P companies in China can do that currently. Because of that, I don't think P2P can become a mainstream business form in China in the short term," he said.
A total of 2,202 P2P websites were in operation by the end of September, compared with 2,417 in September 2015, statistics from the P2P industry portal wdzj.com showed in October.
Controlling crossover business
The plan also prohibits Internet companies without financial business qualifications from carrying out any Internet finance business.
Yang said that the integration of finance and industries is a general trend, and many companies have tried to "cross over" to the finance sector.
"This is not a bad thing, as long as firms do not use this sort of innovation as a tool to break the law," Yang noted.
Zhao also said that it is fine for Internet companies to engage in the finance sector, so long as they get appropriate permission and supervision from the government.
"I think that Internet finance providers should be subject to the same sort of supervision as normal financial institutions like banks," he said.
According to the plan, provincial governments in China should complete the task of clearing up local Internet finance companies before the end of November.