Falling deposit rates and stock market slumps have fueled demand for alternative investment schemes.
Many Chinese investors have resorted to peer-to-peer (P2P) lending, which often offers double-digit return as a lure. However, the risks are also great.
In January alone, an additional 88 P2P lending platforms were reported to be in trouble.
Cumulatively, at least 1,351 P2P lending firms, or one third of the total, were found to have problems of one sort or another, according to China Securities Journal.
P2P lending firms attracted nearly six million investors last year, five times the number in 2014. Industry transactions surpassed 1 trillion yuan (US$152.2 billion) for the first time last year.
But high growth comes at the expense of exposing their customers to high risk and poor management.
A slack regulatory environment breeds dubious operators. Cases of financial crimes related to P2P lending rocketed along with the sector’s explosive expansion.
Meanwhile, keen competition for funding is contributing to the high incidence of failures among weaker companies.
Bad publicity is also hurting P2P stocks.
Global player Lending Club was last quoted at US$8.4, about a third its stock price at the beginning of 2015.
Chinese P2P player Yirendai, which listed in the United States in December, already lost about 40 percent of its market value compared with its initial public offering.
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