P2P Lending ‘Red Hot’ in China in 2015, but for How Long?

China's P2P lending sector saw nearly one trillion yuan in transactions in a booming year for alternative finance.

With rigid government oversight on the country’s financial industry, the P2P lending market continued to boom in 2015 as an alternative to traditional financing. According to a report from Chinese financial website WDZJ.com, and first reported by China News, P2P lending in China reached nearly 1 trillion yuan during 2015. At a total of 982.3 billion yuan ($150.3 billion), the figure rose 288% compared to 252.8 billion yuan in 2014.

Touting higher interest rates than those available at banks, P2P lenders in China have found strong demand from investors to lend on their platforms. The result was a wide ranging group of firms in the space witnessing growing valuations last year, as well as China-based P2P lender Yirendai going public in the US, the first in this particular sector to do so. Marketing itself to US investors, Yirendai revealed that revenues for the first nine months of 2015 had grown to ten times 2014’s level,clearly displaying the strong growth for the product in China.

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However, the future of the P2P lending industry in China is less clear. Following examples of lenders closing down, as well as the government restricting certain companies from providing loans for purchasing stocks on the volatile Chinese market, regulatory frameworks are being drawn up to supervise the P2P lending sector. As such, in the future, Chinese lenders may be required to initiate processes to provide more transparency of loans to their investors, conduct additional due diligence on customers as well as file regular financial reports with regulators.

How such policies will affect the industry remains unclear, as customer demand continues to trigger new growth. However, the addition of regulation is expected to add more expense burdens to lenders which could drive weaker firms out of the sector.

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