P2P Lending in China Sparks Protests

There have been many offshoots of mobile payments to emerge in the last few years, like mobile lending and mobile banking, that have given us plenty of new developments to consider. Peer-to-peer (P2P) lending is one of these, and in China, P2P lending appears to be a particularly prized development. So prized, in fact, that Chinese citizens are demanding the government bail out several hundred collapsed P2P lenders, and are even staging protests to that effect, reports note.

The Chinese government has been quick to respond to the protests; one entire protest was almost preemptively shut down as protesters were carted off to the holding center known as Jiujingzhuang, which is known for holding protesters and petitioners. Another protest saw its organizer arrested before dawn on the morning of the protest.

So what’s happening to prompt so much protest? Zhejiang University’s Ben Shenglin, dean of the Academy of Internet Finance, explains: “A fair share of the recent P2P thunderstorm comes from lawless people operating under the guise of internet finance to commit fraud. Beyond that, overall economic conditions have deteriorated, and then you add the impact of the deleveraging campaign, which means some legitimate platforms can’t find a profitable niche.”

Given that China’s P2P industry is downright massive—its current outstanding loan value is 1.49 trillion yuan, or about $216.4 billion USD as of this writing—it’s obvious that the government would all but demand a stake in it. The potential tax ramifications are one thing, but an industry that controls that kind of asset base is going to be a political power, if only a populist power.

The Chinese government has already demonstrated its response to such potential rivals with its stance on mobile payments firms like WeChat Pay and Alipay, so it’s not a surprise to see it take a similar stance with its P2P lending operations either. Some could say here that the Chinese government is working frantically to ensure the safety of its citizens by ramping up the regulations, but the problem here is that the Chinese government is almost going too far with this.

Overregulation can be a major problem in business, and the Chinese government is illustrating just how bad a problem it can be. When the people are protesting, it’s generally a good plan to reconsider.