Date
15 December 2019
Chinese authorities are stepping up efforts to mitigate risks in the online lending sector. Photo: Reuters
Chinese authorities are stepping up efforts to mitigate risks in the online lending sector. Photo: Reuters

China gives P2P lenders two years to exit industry

China said all existing peer-to-peer (P2P) lending platforms must become small loan providers within two years, a notice seen by Reuters on Wednesday showed, the latest official edict aimed at curbing the once-booming industry.

All Chinese P2P firms need to clear outstanding loans in less than one year before switching to small loans, according to a notice issued by China’s Internet Financial Risk Special Rectification Work Leadership Team Office, which was launched by Beijing to mitigate risks in the online lending sector.

For firms that manage more than 5 billion yuan (US$710.3 million) in outstanding longer-maturity loans, the grace period can be extended by up to two years, according to the notice.

China’s P2P industry was once seen as an important credit mechanism, but lately it has been rocked by pyramid-scheme scandals and absent bosses, sparking public anger as well as a broader government crackdown.

The transition plan, which will begin at the end of November, is “an active approach to resolve risks contained in the existing business of online lenders,” the official notice announcing the measures said.

It aimed to “reduce the loss of creditors, maintain social stability and prompt orderly development of inclusive finance”.

Qualified P2P firms needed to meet a capital requirement of no less than 50 million yuan to turn into a regional small loan company, and no less than 1 billion yuan to transition into a small loan lender qualified to operate nationally, it added.

Fraudulent platforms and firms that contained serious credit risks would be banned from making the transition and forced to close.

Only 427 existing P2P firms were still operating by the end of October, down from 6,000 at their 2015 peak, according to the latest data from China Banking and Insurance Regulatory Commission.

Reuters

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