Chinese Regulator Hones in on Lending Against Shares

Has the crackdown in China’s volcanic P2P lending market begun?

A little known pocket of the vast peer-to-peer lending space in China is feeling the squeeze. The Wall Street Journal reports that Miniu98.com, Xunqianwang and Quchaoguwang will no longer offer “middleman services” for P2P loans that are secured against pledged shares. Each of the platforms appears to have acted in response to a directive from the China Securities Regulatory Commission, which warns against illegal trading.

The tightening of regulation is part of a broader effort to balance China’s rocking share prices.

The Chinese regulator appears to have conducted a coordinated assault on the practice of borrowing to purchase shares. The above-mentioned Commission recently paid a visit to the offices of Hundsun Technologies Inc. The software company provides a cloud-based system that allows peer-to-peer lenders to reach brokers. There appears to be some confusion in the press as to the involvement/culpability of Hundsun.

According to LendAcademy’s Peter Renton, China’s P2P market was responsible for a total loan volume of $41.3bn as of April this year, and was then home to a staggering 1,575 platforms. The coupling together of an engorged P2P sector and a previously booming stock market in China led many individual investors to borrow money in order to buy shares. Sweeping consolidation is expected to take hold within the market before long, and those platforms that have been lending against pledged shares seem to be first in the firing line.

Chuin-Wei Yap of The Wall Street Journal reports that Miniu98.com, Xunqianwang and Quchaoguwang are all relatively early-stage outfits, with the oldest established in April 2014. Read the full WSJ article for a thorough explanation of the mechanics behind the process of pledged shares-secured peer-to-peer lending.

The arrival of a dedicated regulatory framework in the Chinese P2P market is said to be imminent. Controlling the practice of lending against shares is just one aspect of the formidable task of instilling order.