China imposes caps on lending to curb banking risk

Shanghai - China imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in the country’s loosely-regulated shadow-banking sector.

An individual can borrow up to 1 million yuan ($150 000) from P2P sites, including a maximum of 200 000 yuan from any one site, the China Banking Regulatory Commission said in Beijing on Wednesday. Corporate borrowers face caps of 5 million yuan and 1 million yuan.

The lenders are barred from taking public deposits or selling wealth-management products and must appoint qualified banks as custodians and improve information disclosure, the regulator said.

China’s authorities are concerned about defaults and fraud among the nation’s 2 349 online lenders. In December, the country’s biggest Ponzi scheme was exposed after Internet lender Ezubo allegedly defrauded more than 900 000 people out of the equivalent of $7.6bn. The nation has 1778 “problematic” online lenders, according to the CBRC.

Industry clean-up

In April, China’s cabinet launched a campaign to clean up illicit activities in Internet finance, focusing on areas such as third-party payments, peer-to-peer lending, crowdfunding and online insurance. It suspended the registration of all new companies with finance-related names.

China’s P2P industry brokered 982 billion yuan of loans in 2015, almost quadruple the amount in 2014 and an approximately 10-fold increase from 2013, according to Yingcan Group, a research firm which tracks the data. P2P firms attracted more than 3.4 million investors and 1.15 million borrowers in July, with loans extended at an average interest rate of 10.3%, according to Yingcan.

Products offered by P2P platforms in China can include anything from loans for weddings, guaranteed against the cash gifts that couples expect to receive, to high-yield lending for risky property or mining projects.