Illustration: Peter C. Espina/GT

Ezubo.com used to be a prominent example of the growing popularity of online peer-to-peer (P2P) lending platforms in China. But the firm was recently revealed to have sunk into serious trouble, with an enormous amount of lenders' money reportedly at risk.

The investigation into Ezubo is still underway, which means the fate of the P2P lending platform is yet to be decided. But its situation is alarming given the relentless growth in the arena of online P2P lending, and the fact that building capacity in risk management in the sector will not be as easy as building a customer base.

It's down to the regulators, therefore, to establish stricter requirements for P2P lending sites' risk management capacity. Investors should also be warned about the inherent risks in high-yield investment.

Ezubo was only launched in 2014, but it quickly rose to prominence across the country thanks to its expertise in viral marketing. By December 8, when the Xinhua News Agency reported that Ezubo was being probed for alleged illegal operations, the site had managed to attract a total of 74.57 billion yuan ($11.58 billion) from more than 900,000 investors, according to statistics from wangdaizhijia.com, a domestic industry analysis website.

Jinyirong Internet Technology, the site's parent group in Beijing, has been shut down by the authorities who also raided the lending site's offices across the country.

Investors were caught unaware by the incident and are now anxiously considering their options. Some of the investors reportedly gathered to protest at the platform's offices in Beijing and Shanghai in recent days.

The incident has dealt a new blow to the reputation of the country's P2P lending sector, which has already suffered from controversial incidents such as platforms suddenly shutting down and their operators absconding with investors' money.

But it could also serve as a catalyst for greater efforts by the authorities to establish rules specifically designed for oversight of the thriving yet unruly sector.

The trouble is that development and promotion of online P2P investment products requires less effort than is needed for scaling up the P2P lending sites' risk management framework. Ezubo put a huge amount of effort into attracting a large user base, which added to its burden of matching the huge amount of investment with an equal amount of borrowing demand that could afford the high interest rates involved.

The incident also teaches investors a good lesson. Ubiquitous advertisements and a rapid expansion of offline outlets cannot be taken as proof of the reliability of P2P lending sites, especially those claiming to offer investment returns at a level that is much higher than the industry average.

Having said all that, the Ezubo case hasn't brought the country's online P2P lending sector to its knees. And it's not even the case that investing in online P2P products is necessarily more risky than investing in the stock market - something that investors burned by the summer market slump could attest to.

Ramped-up government efforts to unveil new rules for the P2P lending sector would help with the establishment of a sound legal framework, which would surely boost investor confidence. So far, none of the country's online P2P lenders have gone public in the mainland's two main bourses. But it is likely that P2P lending sites will be offered greater opportunities for getting listed in domestic markets in years to come, so long as there is a more convincing legal foundation for handling disputes and defaults.

The article was compiled by Global Times reporter Li Qiaoyi based on an interview with Che Ma, CEO of aicailang.com, a Beijing-based online finance platform. bizopinion@globaltimes.com.cn