Much has been made of the risks that lurk in peer-to-peer lending in China. Dagong Credit Data Co, a Chinese credit rating agency, has published an internet finance blacklist and early warning list.
The release of this list caused an immediate backlash from internet finance companies that were concerned that the list could prompt a negative image of the industry. Other complaints say that there has not been enough justification for why platforms have been included on the blacklist. The roster includes 266 internet lending platforms, while the early warning list includes 676 platforms.
Lufax was the only leading online lender on the early warning list and was classified as a lender with “abnormal investment risk”, although there was no justification for this rating.
The credit ratings agency Dagong is responsible for maintaining and safeguarding national finance security. The company has developed a “four-in-one” credit risk control model for internet finance companies. This includes unlimited access to debtor information, public supervision of creditors, professional monitoring of platforms’ credit rating and publically available blacklists.
At the end of August 2014, Dagong published its first 1,055 internet finance credit evaluation reports, none of which reached a rating of Ai or above. The company also stated that the biggest risks facing the burgeoning internet finance sector are inadequate disclosure, loan defaults, and poor profitability.
Wang Zaixiang, president of Dagong, said emerging problems in the internet finance industry have the potential to derail the sector:
"Most of the information disclosures by the P2P lenders were not comprehensive. They have difficulties in paying their debts, in achieving profitability, and in management."
According to the Internet Society of China, transactions involving peer-to-peer platforms doubled to 250 billion yuan (US$40 billion) in 2014. Despite the growing risks China’s internet finance sector is set to continue booming in 2015.
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