Author Topic: China’s Once-Hot Peer-to-Peer Lending Business Is Withering  (Read 837 times)

Fred93

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China’s Once-Hot Peer-to-Peer Lending Business Is Withering
« on: February 02, 2020, 02:33:30 PM »
Article in WSJ today about China's P2P lending businesses, and how they're dying off. 
https://www.wsj.com/articles/chinas-once-hot-peer-to-peer-lending-business-is-withering-11580644804
The article is paywalled.  I've included a few snips below.

I've written here before about how many (huuuuge numbers) of these P2P businesses started up in China.  It was clear this was a bubble.  We use the term "Wild West" to describe an unregulated frenzy, but maybe we should change that to "Wild East".

Quote
China’s peer-to-peer lending industry, once a world-beater, is on its last legs.

Entrepreneurs had hoped to fill a gap in the Chinese financial system ignored by state-backed banks. Thousands of peer lenders flourished, gathering funds from small investors and extending credit to family restaurants, parents with tuition bills to pay and other small borrowers. Several larger players such as Yirendai Ltd., PPDAI Group Inc. and Qudian Inc. went public in the U.S.

But a dramatic reversal in official attitudes has made life much harder for peer-lending entrepreneurs such as Darwin Tu. His lending platform, Super Credit, at its peak boasted roughly 3,000 employees, more than 100 branches, and international expansion plans. It is now down to a single modest office in Beijing and a few dozen staff.
...

The article seems to blame the decline on regulators, but I don't agree.  The rise of thousands of small P2P lending companies was a frenzy and a bubble, and even without the help of regulators, most of them surely would have failed, taking down Millions Billions of dollars worth of investors savings with them.  Regulators had to act.  As we know from the history in the US, the whole P2P idea simply hasn't worked out long term as well as initial dreams indicated.

Look at these charts!

Oh man.  THOUSANDS of little companies, come and gone...  We think about a handful of companies in the US.  A few handfulls in Europe.  There were THOUSANDS of them in China, and still are HUNDREDS. 

We recognize the peak of this curve corresponds to the peak enthusiasm in the US too.


Interestingly, as the # companies peaked in 2016, the number of loans kept increasing.  Levelled off in 2017, and the big decline in loans started in 2018.  This big decline does look like a regulatory hammer.


Quote
Early last year, national authorities said platforms that didn’t meet regulatory requirements needed to be shut, leading many provinces to say they would close all peer lenders. The number of lending platforms has dropped to less than 400 from a peak of more than 3,500.

In November, authorities gave the remaining peer lenders at most two years to exit from the industry. If they want to continue they can become pure intermediaries, helping banks find small-business customers, or they can transition to providing small cash loans.

Huh.  That transition to intermediaries is what is happening in the US without being forced by regulators.  So same thing is happening in China, but with different dynamics.

The incredible frenzy that we saw in China never happened in the US due to fed & state regulators getting engaged quite early in the development of this industry.


rawraw

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Re: China’s Once-Hot Peer-to-Peer Lending Business Is Withering
« Reply #1 on: February 03, 2020, 03:08:43 AM »
I don't know much about the Chinese financial system, but I suspect part of the reason it grew faster is not just regulatory differences but also they have less established means of accessing credit. Our lending ecosystem is quite mature

AnilG

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Re: China’s Once-Hot Peer-to-Peer Lending Business Is Withering
« Reply #2 on: February 03, 2020, 04:03:58 AM »
Chinese p2p lenders are not failing, they are being killed. I haven’t seen any data to show these lenders had unsustainable default rates or lack of lending capital that a typical non-regulator driven failure would have. Non-banking lenders and shadow lenders are primary lenders for majority of people. IMO, crackdown is politically driven, the banking lenders being politically connected and influential, regulators are doing their bidding. Majority of non-banking lenders being killed were smaller entities with regional coverage. When there are few thousand lenders, you are bound to have some failures. I don’t believe non-regulator driven failure rate in China is that much different than US and European failures.

Particularly in US, smaller lenders never got the foothold because regulations were already stacked against them. There is no way even larger players like Lending Club and Prosper could compete against GS backed Marcus and other banking lenders. Established financial institutions have large enough regulatory moat to protect their business.
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Anil Gupta
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nonattender

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Re: China’s Once-Hot Peer-to-Peer Lending Business Is Withering
« Reply #3 on: February 11, 2020, 05:37:21 AM »
I don't know much about the Chinese financial system, but I suspect part of the reason it grew faster is not just regulatory differences but also they have less established means of accessing credit. Our lending ecosystem is quite mature

Well, they're catching up... and they don't seem to have any compunctions or moral hesitancy about using the tech for other purposes.

https://www.justice.gov/opa/pr/chinese-military-personnel-charged-computer-fraud-economic-espionage-and-wire-fraud-hacking

A little nonsense now and then is relished by the wisest men.

rawraw

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Re: China’s Once-Hot Peer-to-Peer Lending Business Is Withering
« Reply #4 on: February 15, 2020, 04:35:15 PM »
A consistent theme we have seen is younger countries skip the innovations of old and go straight to the new stuff. This has to do with a lack of infrastructure and generally the old innovations take more infrastructure. For example, you see this in many countries where they skipped land lines straight to cell phones. In China, everyone is using Fintech.