China Curbing P2P ‘Margin’ Lending to Limit Stock Market Speculation

The China Securities Regulatory Commission is telling P2P lenders to curb use of their platforms to source loans to buy

China’s volatile stock market has led financial regulators to review the source of funds investors are using to bet on the moves their favorite stocks. After more than doubling its value in less than a year, the Shanghai Composite Index hit a 52 week high in June of 5178. This was followed by a correction that caused the index to fall below 3500, before rebounding to its current level of 3957.

While many investors profited with the move up, a large class of the Chinese population were late into the rally, buying before the peak as well as doubling down as the index fell. With the government making a commitment to inject liquidity to bolster the market from further losses, it has renewed investor interest who are trying to buy shares in front of the government backstop.

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Among method of raising funds to take advantage of the opportunity, investors have turned to P2P lenders for additional capital. As a result, according to the South China Morning Post (SCMP), the China Securities Regulatory Commission (CSRC) has issued a decree to P2P lending platforms to ban loans to margin traders. While China is ready to inject funds to prop their local stock market, the government is also trying to minimize speculation that could in turn create another runaway bubble market.

According to the SCMP, the first P2P lender to comply with the new rules is Minui98.com, who operates one of the largest lending platforms in China. The report cited statistics from China’s Huatai Securities that around $32.2 billion in liquidity has emerged from P2P lending platforms, with Miniu98 responsible for over $800 million.

Beyond the losses to investors in their stock positions, the inability of borrowers to repay loans could create another sizable problem for Chinese investors of P2P lending platforms. Among participants that have been active as lenders on P2P lending platforms are leading Chinese businesses and company founders.

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