(Newswire.net — August 30, 2018) –China is cracking down on P2P lending as part of an effort to clean up the industry amid the trade war with Washington.
The Financial Stability and Development Commission called for steps to clean up inadequately capitalized P2P lending platforms and prevent a potentially massive sell-off of listed company shares following the crackdown.
The government is working to create a complete list of P2P lending platforms in the country, which total in the thousands, and their respective risks. The commission has stated that clean-up solutions can differ based on local conditions provided that the problems are solved.
New standards related to internet-based lending will be drafted as part of the regulatory mechanism.
Thousands of P2P lending platforms have launched in China in recent years. Capital is taken from retail investors with the promise of higher returns than what banks can offer. The funds were lent to private firms that did not have access to credit.
Most of China’s P2P lending platforms are not licensed, which has made them the target of the government’s campaign to curb risky lending practices. The crackdown has already forced many platforms to shut down. In July, more than 160 had collapsed.
But in closing, thousands of retail investors lost their savings. Many of these investors have taken to the streets demanding that the government help them get their money back.
China will initiate a new round of checks on thousands of P2P lending sites, according to Bloomberg News. The government first started cracking down on P2P lenders two years ago, which has weighed heavily on the industry. Pressure on the $139 billion industry has intensified in recent months.
Outstanding loans have fallen 26% to hit 956 billion yuan from 1.3 trillion yuan in June.
As part of the new checks, P2P platforms will be subjected to 108 queries related to their money-raising practices, principal and return guarantees, and illegal loans.
Platforms that are complying with the rules will be permitted to connect to a national product and information registration system. Those that succeed at a trial run will be allowed to apply for an official business registration.
China is also taking steps to address the over-leveraged stock market. Many investors have borrowed heavily to buy more stocks. When the prices of collateral stocks fall, many of these investors are forced to liquidate stocks to repay their loans.
Stock prices are already in a downward trend. The Shanghai Composite Index has reached its lowest level since 2015 when the market collapsed.