Beijing – (December 5, 2018) – Starting from 2007, the online lending industry in China has been developing substantially with transaction scale growing rapidly specifically since 2014. Recently, Professor Li Liao, Executive Associate Dean of PBCSF and Dean of THUIFR, wrote in the latest edition of Tsinghua Financial Review that, online lending plays as the important supply-side reform in the finance industry, and provides the impetus for financial inclusion in China.
The outstanding balance of online lending industry in China increased from 0.1 trillion RMB at the end of 2014 to 1.22 trillion RMB at the end of 2017, with an average annual compound growth rate of 130%. Similarly, the total online lending volume in China also increased from 0.25 trillion RMB in 2014 to 2.8 trillion RMB in 2017, with an average annual compound growth rate of 126%.
The development of online lending in China rooted in the situation and challenges in both the supply and demand of funds. On one hand, online lending provides a new source of financing for individuals and businesses. In addition, compared with bank credit products, online lending products are more flexible in borrowing terms, faster and more convenient in the process. On the other hand, compared with bank deposits and wealth management products, online lending products often enable individual investors to invest in with lower minimum amount for investment, higher yields and better investment experiences. Meanwhile, online lending has also greatly encouraged the tech innovation and the development of the fintech industry in China including applying big data in risk control, personal credit management, and business model innovation.
Although online lending platforms have been growing substantially, many platforms are gone, which attributed to a low threshold for investment, huge demand and inadequate regulation on the online lending industry. According to the research done by THIFR, many online lending platforms massively went bankrupt during the periods of January 2015 to December 2016 and from June 2018 to August 2018, respectively. During the first period, more than 50 problem platforms went bankrupt every month, and the research shows that illegal financial activities including financial fraud and P2P self-financing were the main reasons behind that bankruptcy. And, during the second period, more than 400 problem platforms went out of operation. Reasons behind were more complicated, including external factors such as macroeconomic downturn and de-leverage, and internal factors such as rigid redemption and strategic default on debt.
As the regulatory authorities have issued specific measures to supervise internet financial risks and online lending institutions since April 2016, online lending industry has been growing more sustainably, but the past history especially reviewing the two periods when platforms massively went bankrupt, it indicates that it is very necessary to enhance supervision and guidance from the following aspects:
• Establishing a clear threshold for the industry
• Promoting information disclosure of online lending platforms
• Breaking the rigid redemption
• Establishing and improving personal credit system
• Enhancing financial education for investors
• Gradually establishing the grading system for online lending investors
Online lending has become a more and more important part of the finance industry in China, we look forward to its positive development and a bright future.
