Internet finance in a state of flux with regulators stepping in to bring some stability and direction

Source:Global Times Published: 2018/12/25 18:26:23

Photo: VCG

China's internet finance industry, which saw explosive growth in risks around mid-2018, has so far shown no signs of a genuine rebound. As of press time, a number of domestic Internet finance companies that have been listed on the US stock markets had seen their share prices plunge. Companies that had once poured investment into the sector are also withdrawing their money from the sector. To rein in the chaos, the government is mulling stricter management of the internet finance sector, though industry experts are still confused and frustrated by the sector's prospects.

China's internet finance industry, where chaos broke out in mid-2018, has recovered a little bit so far but it is still far from a genuine rebound.

Recently, the Beijing-based Chang An Property Casualty Insurance Co was reported to have compensated nearly 2 billion yuan ($290 million) for its joint business with a number of domestic peer-to-peer (P2P) online lending platforms, according to a report of the Time Weekly.

The tumbling business of domestic internet finance companies has also been reflected in the capital markets. As of press time, at least nine domestic internet finance companies that are listed on the US stock markets saw their share prices slip below their issue price.

"The year of 2018 is a year where hope is nowhere to be found," a CEO of a medium-sized online lending platform said in an interview with Lengjing, an investigative financial news program owned by Tencent Holdings. Being an entrepreneur in the internet finance industry for five years, the CEO said he felt like he was "standing on the edge of a cliff."

A senior executive of domestic fintech startup 360 Finance also said on December 14 that nowadays he does not dare to tell other people that he is in the internet finance industry. But he still urged society to "give some encouragement" to the plunging sector.

'Thunder' explosion

The internet finance sector had once been a hot area, particularly for the P2P sector. At the peak in 2015, there were nearly 7000 P2P platforms in China, attracting a large amount of investment money as people were drawn by the higher interest rates compared to traditional channels.

However, risks in the internet finance industry have been brought to public and government attention after the number of payment defaults exploded in China.

In the first few months of this year, there were about 70-80 questionable online lending platforms per month, but the number suddenly rocketed to an astonishing 275 in July and 104 in August, along with the collapse of many well-known brands including Shan Lin Financial and Tangxiaoseng.

Data from the also showed that as of the end of November, there were more than 5,200 questionable online lending platforms whose business has been shut down.

About 2 million people had invested their money in those questionable platforms, the data showed.

In October and November, the number of new questionable online lending platforms decreased a little, but it's hard for the industry to get back on the horse and resume the kind of vitality it used to have, as investors are gradually losing confidence in those platforms.

Capital exit

With the problems gradually emerging in the internet finance sector, investment capital is also receding fast as investors have lost confidence in the future of the industry.

The stock price of many listed online internet finance companies has slumped this year. For example, the stock price of China Rapid Finance has slumped by about 79 percent so far in 2018.

Many institutional investors, who once bet on the nascent industry, also started to withdraw from the sector. According to data from the, there are 79 listed companies which have invested in about 90 P2P platforms, and so far 34 of those platforms have been reported to have problems. Under those circumstances, many listed companies are either withdrawing from their partnerships with those online platforms or transferring those partnerships to other parties.

An internet finance veteran also commented that since the beginning of 2018, domestic internet giants are also trying to keep some distance from the sector by avoiding being involved in capital-related business, focusing instead on periphery businesses like data and internet flow, the Lengjing report said.  

Chen Shengqiang, CEO of JD Finance,'s financial division, announced in April that JD Finance will not provide financial products in the future, but will only give technical support to financial institutions.

With the capital flows out of listed companies, banks have instead increased investment in the internet finance sector. The China Construction Bank, for instance, has set up a fintech company in April, the first wholly-owned fintech subsidiary founded by a large State-owned bank. 

Government management

As problems emerge, the Chinese government is also considering intensifying oversight and management of the internet finance sector to rein in the risks.

Pan Gongsheng, deputy governor of the People's Bank of China (PBC), said during an internet finance forum on December 8 that the PBC is proceeding with the establishment of a long-term management mechanism for fintech and internet finance.

According to Pan, the essence of fintech is still finance, and therefore it should obey relevant finance laws and regulations. "No financial activities can be exempt from the management system," he was quoted by a Xinhua News Agency report as commenting on December 11.

His view has been interpreted by Lengjing as a sign that the government would impose stricter management on fintech as well as internet finance sectors.

The government has also taken concrete measures to standardize online platforms that involve finance business. In mid-August, the Chinese government issued a guideline ordering domestic P2P platforms to go through compliance checks before the end of 2018.

According to the guideline, domestic online lending platforms should rectify their own businesses in accordance to a list of detailed rules released by the government.

The Lengjing reported that so far 220 P2P platforms had submitted their self-investigation reports to the government.

But industrial insiders are still confused as well as a little frustrated about the industry's current situation. The aforementioned CEO of medium-sized online lending platform said that he felt the online lending industry has been "strategically given up" by the regulators.

Newspaper headline: Industry in confusion


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