The People's Bank of China has sought to clean up the murky Chinese P2P space with new policy measures and regulatory propositions.
The measures are aimed at tackling the prevalent fraud and malpractice that has to date plagued the Chinese P2P space. Whilst growth has been impressive – Shenzhen Daily states that the number of companies nationwide grew from 1,627 to 2,028 between January and June – the extent of the malpractice has worried regulators for a while. Indicating the size of the issue, Ye Daging – CEO of Rong360 commented:
"About 80% of these companies will be eliminated if they don't transform"
Traditional finance in China has been criticized for not providing credit to small businesses, preferring instead to lend to large or government owned companies. China’s growth rate is at its lowest point for 24 years and, given the enormous and imminent impact implied by Ye, it is plausible that the internet financiers’ ability to plug the void left by traditional finance and fuel SME growth has encouraged regulators to hold off from regulating and restricting the market. The regulator now argues, however, that the policy measures are aimed at encouraging innovation in the finance sector. Xu Lianwen - founder of Renren Money - welcomed the measures, remarking that:
"The guidelines will speed up the crackdown on illegal financial platforms that engaged in fake transactions, defrauding and self-financing and result in industry reform”
Liu Xuezhi - analyst at the Bank of Communication - said:
"In the short term, the regulators are set to give priority to risk control and to kicking out some unqualified players."
Saturday's announcement marks the second instalment in China's move to instill order within a turbulent industry. The first came in the form of the Chinese regulator cracking down on borrowing to fund the purchase of shares. This follows significant regulatory developments across Asian alternative finance markets, with highlights including Malaysia becoming the first Asian country to regulate equity crowdfunding and S. Korea taking the preliminary step of legalising crowdfunding.
A detailed list of the announced rules can be found below:
The policy measures state that the PBC will:
On top of this, the regulatory propositions are: