Investors should evaluate risks of projects, investment industry: experts
As China has been ramping up efforts to strengthen regulations on the online financial industry, an increasing number of Peer-to-Peer (P2P) lending platforms have found themselves collapsing. As such, experts have warned investors of the perils of illegal financial activities that offer lucrative rewards.
After several P2P firms such as lianbijr.com and txslicai.com.cn were investigated by police in June, another Shanghai-based online lender reportedly collapsed.
"Executives of yilongcaifu.com cannot be reached and its office in Shanghai is now empty," a Shanghai-based investor who preferred to remain anonymous told the Global Times.
Yilongcaifu and its parent company Fuxing Group have been shut down and are under investigation by police, news site stcn.com reported on Thursday. Fuxing is a private company focusing on businesses including commercial property, asset management and finance, and the assets managed by the group reached more than 35 billion yuan ($5.3 billion) in 2017, the report said.
As a private equity fund manager, yilongcaifu offers asset management services for high net-worth investors. Some investors had bought financial products worth 50 million yuan on the platform before it fell, media reports said.
Not only yilongcaifu, but another Shanghai-based P2P firm, xzgjf.com, has been struggling with cash flow problems, the stcn.com report said.
Financial products on xzgjf.com promised annual returns ranging from 8 percent to 14 percent, its website showed.
The platform said in a statement on its website on Tuesday that since June 19, investors have been finding it hard to withdraw money because a large number of borrowers have been failing to pay back money on time, which has urged many investors across the country to visit the company's office.
From June 24 till the end of the month, a total of 28 P2P lenders collapsed, according to information from industry website wdzj.com.
A veteran investor surnamed Zhou said that platforms promising yields that are higher than the average market level - around 4 to 6 percent - may possibly encounter some problems. "But that does not mean lenders promising lower returns are 100 percent safe."
"Investors should take comprehensive factors into consideration to see whether the projects that seek funding on these P2P platforms are genuine or not," Zhou said, adding that investors should also evaluate whether there are large risks in the investment sectors.
Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, warned investors of the risks of illegal financial activities that promise lucrative rewards.
"Returns above 6 percent should be questioned, those exceeding 8 percent are very dangerous, and those higher than 10 percent will lead to full loss of principal," Guo told a meeting on June 14.
Lu Zhenwang, an independent internet analyst, said that Chinese authorities have been strengthening regulations on the sector since 2017 by inspecting illegal P2P platforms, adding that such efforts will continue in the future.
Lu told the Global Times that relative departments are likely to require P2P lenders to save some capital in banks, which can then be used as compensation if platforms collapse.