China's risky P2P lending

Peer-to peer lending in April reached a record volume of 55 billion yuan ($8.9 billion, 7.9 billion euros) in China, a new report by the state-owned Xinhua news agency revealed Wednesday. The figure marked a 300-percent increase from levels reached a year earlier.

It said a record number of Chinese had turned to the private and largely unregulated lending market online as loans were still hard to get from regular state-owned banks despite the government's recent efforts to encourage lenders to make more money for borrowing available to not only small and medium-sized companies but also to individuals.

The P2P business has also been found rather lucrative by the online loan providers, who have enjoyed much higher returns than any bank deposits in China. Alternative investment channels are also rather limited.

Risky business for lenders and operators

However, the private lending sector has lacked any real regulatory or control mechanism, with many online platforms hardly checking borrowers' creditworthiness. Xinhua reported that some 10 percent of loans taken out in the past year were not repaid.

In 2014, around 250 online P2P lending platforms went bankrupt - on the back of another 275 such businesses going bust a year earlier.

The China Banking Regulatory Commission has vowed to tighten regulations on P2P lending activities, including the introduction of new registration rules and external audits. Chinese media reported the platforms could be required to put up a minimum of 30 million yuan of their own capital and to issue no more than 110 times their own capital in loans to clients.

hg/cjc (dpa, Xinhua)