Chinese P2P Industry Begins To Falter
The fledgling peer-to-peer lending industry in China has in recent months taken a series of knocks, with many of the smaller players leaving the market. In fact, about 5% of the total Chinese P2P companies went bankrupt in the last three months of 2013. Turbulent economic conditions have been at least partly blamed for this, and some now see the Chinese P2P market as an indicator of what may occur in Europe and the USA if, or we should say when, interest rates begin to rise.
Peer-to-peer lending, which has become increasingly popular since banks became reluctant to lend during the financial crisis, is building considerable investor confidence now in the West, with some of the big banks even muscling in themselves. The Chinese market, however, is still in its infancy and prone to problems, some of which have been caused by historically light-touch regulation. It’s likely that this will now change, and lending practises be sharpened under closer scrutiny, so expect the surviving, larger players to come out of this stronger still. Although some have estimated that up to a scary 90% of Chinese P2P companies could eventually go out of business, the theory goes this will leave the market itself much more resilient, with only the most stable and well-run operations still going.
The roots of the problems in China have been suggested as a lack of liquidity in the economy; a loss of faith from investors; lending to too many risky borrowers likely to default, and simply too many companies entering the market sensing quick profits, with little to no idea of actually how to operate effectively. In reality it’s likely to be a combination of factors
This situation has got a lot of people rattled, but others are surprisingly positive. For instance, recent research by global financial consultants Celent indicates that P2P loans could rise to nearly $8bn by 2015 an astonishing increase. Investors needn’t be too spooked by the market re-organising itself – there’s still a lot of confidence in P2P in China.
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