Internet finance under strain as Dada struggles: report

By Yu Xi Source:Global Times Published: 2015-12-16 20:28:01

More risks emerge in fast-growing sector with little regulation

Photo: CFP

Media reports on Wednesday said another Internet finance company has encountered difficulties only days after online peer-to-peer (P2P) platform Ezubao halted online operations to cooperate with the authorities in an investigation.

Shanghai-based Dada Group, a subsidiary of Shentong Group, is believed to be under investigation by the police, but the company hasn't commented on that issue, the Modern Express, based in Nanjing, capital of East China's Jiangsu Province, reported on Wednesday.

Dada Group is so short of cash that it can't even pay employees on time, State-owned news portal said on Wednesday.

The company attempted to force staff to purchase its financial products as a means of raising cash, the report said, and the company is busy dealing with complaints from "laid-off" employees as most declined to do so.

Both the Beijing and Shanghai offices of the company were not available for comment as of press time on Wednesday.

"Our branch's operation is normal," an employee surnamed Li in the branch in East China's Anhui Province told the Global Times on Wednesday. When asked about other branches, however, she didn't give further information.

Dada Group was established in 2013 and expanded quickly. As of the end of October this year, it had 374 subsidiaries and 717 branches, according to its website.

But the company has changed its name and corporate legal representative several times since 2014, an anonymous legal source was quoted as saying by the 21st Century Business Herald on Wednesday. The company's registered capital was supposed to have been 200 million yuan ($30.93 million), but it was never actually paid in, the person said.

"Over the past two years, Internet finance has grown rapidly in China, but the regulations haven't kept up," Dong?Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the?Global Times on Wednesday.

With the economic downturn, the number of investment projects is declining, which has had a negative impact on Internet finance companies, Dong noted.

Many small Internet finance companies offer higher returns to woo investors, but that also pushes up their operating costs, Dong said, warning that more small Internet finance companies will be driven out of the market.

On July 18, the People's Bank of China, the country's central bank, released a guideline with other government authorities that deals with Internet financing. The guideline encourages innovation but also contains measures to standardize the development of Internet finance.

Internet finance includes online payment services, loans, insurance, trusts and consumer finance as well as equity-based crowdfunding.

Dong said individual investors should choose large Internet finance companies with a strong financial base and a sound reputation.

"Investors need to be aware of the potential risks when they purchase these finance products," he noted.

"I purchased financial products from some large Internet finance companies, but I don't want to take a risk with small companies, even though they offer really high returns," Lu Ran, a 34-year-old housewife in Shanghai, told the Global Times on Wednesday.

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