User:Jinglehorse32/sandbox

= Internet Finance in China = *see Financial Technology

Internet finance is a broad topic related to financial technology that refers to methods of payment, processing of information, and resource allocation used by financial organisations through online platforms. The phrase ‘internet finance’ was coined in April 2012 by Ping Xie vice general manager at the China Investment Corporation. Since 2011, Chinese internet finance has grown to incorporate several models by which financial interactions can operate, such as peer-to-peer (P2P) lending, mobile and third-party payments, internet currency, big data insurance, crowdfunding, as well as the ‘internetization’ of traditional finance such as mobile banks and network stock exchanges.

Initially, internet finance in China experienced a large and rapid growth due to an under supply of financial services, minimal government regulation and progress of technology such as mobile applications and internet security. Loose regulation is also attributed to several instances of fraud and exploitation, particularly with regards to the area of loans, which has attracted criticism. Since 2016, regulatory bodies such as the Chinese Banking Regulatory Commission (CBRC) have introduced policy to deal with the risk associated with certain internet financing streams, such as the all out ban on initial coin offerings (ICOs). As internet finance matures in China, further regulation is predicted as encompass and define new forms of internet finance.

Online P2P lending
*see P2P lending

Online P2P lending is a popular method of accessing credit and investment in China. A lending platform operates as an intermediary for ‘peers’ to organise lending between each other. China has the world’s largest P2P lending market with a total of $216.96 billion USD in outstanding platform loans as of 2018.

Early growth
The P2P lending industry began in 2011 with a few platforms such as YiNongDai and PaiPaiDai with a total of 50 by the end of the year. Due to government restrictions disallowing banks to offer interest rates higher than that of the base interest rate, P2P platforms offered Chinese individuals and companies an alternative method of investment with relatively high returns of often 8-12%. Lending platforms also allowed those who found it difficult to obtain loans, specifically individuals and SMEs, access to credit.

Platform Boom
Between 2012 and 2015, the demand for P2P lending grew as did the number of P2P lending platforms, expanding from 200 to 3769. The relaxed government policy is believed to have encouraged excessive risk-taking behaviour and resulted in platforms innovating to capture the market demand.  For example, some platforms gave the appearance of a low risk investment by promising a fixed return. However, 1 in 3 platforms experienced problems in 2015, in areas such as bad loans, with some platforms already claiming bankruptcy.

Fraud and Risk
In 2016, the risk involved in P2P lending for many platforms began to surface with a report released by the CBRC, showing that 40% of P2P lending platforms operated as differing forms of ponzi schemes or otherwise “Problem platforms”. The largest of which was Ezubao’s embezzlement of $7.6 billion from 900,000 lenders before the end of 2015(see 'Ponzi scheme' section of Ezubao article for details)[][]. Other suspect practices involved users lending to college students, where naked images of female students posing with identification were requested as security for loans, such as in the case of Jiedaibao [Renrenxing Technology Co. Ltd ], often accompanied with very high interest rates. Sexual services were requested by loan agents as debt repayments in some cases.

Platform Quantity
There is discrepancy as to the number of operating online P2P platforms over the years. Some sources indicate that the number of platforms peaked in 2017 with over 4000 concurrently operating platforms while another source claimed a peak of 3,884 in 2015 (see table 1).

Recent Years
The number of failed platforms has also increased to 4,334 as of June 2018. Further, government regulation has from 2017 onward has caused a decline in the number of P2P platforms with many predicting that the number of platforms will fall by 70% by the end of 2019.

Initial Regulation
On December 28, 2015 the CBRC drafted an initial set rules that platforms must comply with. Crowdfund Insider[link] indicates that the regulations can be broken into 12 disallowed activities direct relating to the operation of P2P lending platforms (see quote below). The regulations mainly focus on the improved disclosure of information to lenders including data on bad loans and number and volume of transactions as well as defining the purpose of online P2P platforms as solely information intermediaries. Further, the rules set parameters for operation including the introduction of borrowing limits for individuals and companies and the requirement for funds to be held at a registered bank.

"1. Using the platform for self-financing or for financing of related parties.

2. Directly or indirectly accepting and managing lender funds.

3. Providing guarantees to lenders or promising guaranteed returns on principal and interest.

4. Marketing or recommending loan investments to users that have not completed identification verification after registering on the platform.

5. Directly making loans to borrowers, unless stated otherwise by applicable laws and regulations.

6. Structuring loans into investment products with liquidity timing that differs from the original loan term.

7. Selling bank wealth management products, mutual funds, insurance annuities and other financial products.

8. Unless stated otherwise by applicable laws and regulations, collaborating with other investment or brokerage businesses to bundle, sell or broker investment products.

9. Providing false loan information or create unrealistic return expectations.

10. Facilitating loans for the purpose of making investments in the stock market.

11. Providing equity crowdfunding or project crowdfunding platform services.

12. Other activities forbidden by applicable laws and regulations."

- quote from CrowdfundInsider.com see reference 18

Other Regulation
Due to suspect practices involving college students, in 2017, the CBRC released the ‘Notice on Further Strengthening the Regulation and Management of Campus Credit’. The notice prohibits online lending platforms from offering to new loans to university students. Further, the document states that only organisations that are approved by regulatory authorities are allowed to provide credit to college students.

List of major online P2P platforms operating in China

 * Lufax
 * PaiPaiDai