Victimized investors take to the streets in protest after the collapse of P2P platforms in mainland China.
After analyzing a large number of P2P cases decided by the Chinese Communist Party courts, this reporter further investigated the data of Chinese online lending platforms and related policy propaganda in the past decade or so, and found that the collapse of P2P in China is not only a problem of bosses cheating and running away or regulatory oversight, but there is a clear correlation between the collapse of the online lending industry as a whole and the systematic arrangement of the authorities.
On January 15 this year, the central bank of the Communist Party of China announced that all P2P companies had been “zeroed out” and that the financial risk battle in 2020 had achieved important milestones. Almost simultaneously, on January 13, 2021, Shenzhen‘s $100 billion P2P platform, Maverick Capital Group’s “Maverick Online” and “Maverick Private Equity” platforms, were investigated by the authorities on suspicion of illegal The authorities have opened a case for investigation for the crime of illegal public deposits.
In fact, in November last year, the China Banking and Insurance Regulatory Commission announced that P2P would be zeroed out. But for countless P2P lenders (investors), the authorities’ zeroing campaign not only failed to protect their investments, but completely detonated a mine field of wealth being zeroed out. Take Maverick Online for example, from the May 2020 announcement of the “good retirement”, to the Shenzhen public security arrests, Maverick cumulative payout of 238 million yuan, the payout ratio of only 2.28%, hundreds of thousands of investors of more than 10 billion pending loans or turned into a bubble.
China’s P2P industry has been developing for 14 years, with more than 5,000 operations at the same Time at its peak and an annual transaction size of about 3 trillion yuan, how much damage has it eventually caused to the Chinese people?
Although the Chinese Communist Party has not released details, Guo Shuqing, chairman of the CBRC, revealed last year that online lending platforms “still have more than 800 billion yuan from lenders that have not been recovered.
Public statistics: 15,000 P2P platforms 90% have problems
According to incomplete statistics from online lending portals such as 51.com, 110.com and 100.com, as well as the list of P2P companies released by the Chinese Communist Party authorities, there have been at least 14,864 online lending platforms online in the past 14 years since the first P2P platform in China was established in 2007, with at least 13,378 independent companies affiliated with them.
Our reporter collated the data published on various websites and found that only the 1,855 online lending platforms exposed by online lending portals had 344 million participants and a pending balance of $936.9 billion. These 1855 P2P platforms account for 12.5% of the total number of online lending platforms.
This shows that the 800 billion yuan of bad debts in the online lending industry disclosed by Guo Shuqing last year should be “shrinkage” data, the Chinese people were swallowed by the P2P hard-earned money at least more than a trillion.
The proportion of online lending platform normal operation benign exit suspension of operation existence controversial early warning loan extension loss of association fraud economic investigation collapse rectification
Total number of online loans
14864
3.5% 3.6% 11.5% 0.1% 5.2% 12.4% 52.6% 1.2% 7.8% 1.5% 0.5%
Statistics on the operating status of China’s online lending platforms (Source: China’s online lending portals)
According to incomplete statistics of data published by various online lending portals, among nearly 15,000 P2P platforms, the proportion of those that were able to operate normally and exit benignly before being cleared was only 7.1%, and the proportion of other online lending platforms that exposed various problems was over 90%.
The extremely high percentage of problematic platforms indicates that the P2P industry in China as a whole is not developing benignly and the authorities’ supervision is null and void.
The correlation between the development of P2P in China and the changes in the CCP’s policies
As previously reported in “Court Case Reveals Hidden Secrets Behind China’s P2P” (original report), there is a lack of supervision of the P2P platforms being filed. Further investigations into China’s online lending industry reveal that the rapid growth and overall collapse of China’s P2P industry is no accident.
The most obvious evidence of this is that “you look at people’s interest, they look at your principal”, a rather old-fashioned Ponzi scheme, has become a government-promoted “financial innovation” in mainland China – P2P network finance.
According to financial commentator Tang Ao, nominally P2P should only be engaged in information intermediary business, not involved in capital, but under the governance of the Chinese Communist Party, almost all of China’s P2P are involved in credit intermediary, directly handling capital lending, which is often packaged with a variety of new patterns of old scams.
Using the establishment of China’s first P2P, Paipai Lending, in 2007 as a starting point, and analyzing the timing of the launch and business registration/changes of P2P platforms from 2007 to 2020, it is clear that there is a clear correlation between the annual net increase and cumulative number curve of platforms in China’s online lending industry and the propaganda and policy support for Internet finance by the CCP authorities.
Annual increment of P2P platforms vs. CPC policy propaganda during the same period (Source: various Chinese online lending portals)
The graph of annual P2P platform increment shows that China’s online lending platforms developed through three stages.
(1) 2007 to 2012 was a period of steady development without official promotion, with few bursting platforms.
(2) 2013 to 2015 was the stage of rapid development of online lending platforms after official promotion of P2P (propaganda content 1-9).
During this period, under the policy call of the authorities to encourage financial innovation and vigorously develop “Internet + financial inclusion”, the central and local official media competed to report and publicize it, attracting the attention and positive response of hundreds of millions of Chinese people, and P2P thus rapidly developed into a hot industry.
CCTV, the most influential official media in China, has reported on P2P dozens of times, including 6 times on “News”, 4 times on “Focus Interview”, 1 time on “China News”, 1 time on “Whole Finance”, 1 time on “Economic News”, and the head of the central government at the national level has spoken out in favor of P2P 4 times.
From 2013 to 2014, the most intensive years of “promoting the development of Internet finance industry” policies were issued by major cities in China, and continued into 2015. The following chart compares some of the Internet finance policies.
In just one year from 2013 to 2014, the annual number of registered companies increased from 1,480 to 4,058; the annual number of online platforms increased from 761 to 2,897; the annual net increase in the number of platforms increased from 647 to 2,456.
From 2014 to 2015, the growth rate is not as fast as the previous year, but the net increase is still amazing. Meanwhile, there were 1,794 problematic platforms in 2015, 4.1 times the number of problematic platforms in 2014, showing that P2P problems began to explode.
(3) 2016 to 2020 for the burst remediation and clearing stage. The annual number of registered companies, the annual number of online platforms declined year by year, the problem platform continued for four years to maintain more than 2,000 per year, so that the net increase in the number of platforms and companies continued to be negative growth, until 2020, the net credit platform all retired to zero.
Cumulative number of P2P platforms vs. regulations and policies introduced by the CPC in the same period (Source: China’s various online lending portals)
The cumulative number of P2Ps graph reflects that the CCP had issued several regulations on the areas related to online lending since 2010, but apparently did not implement them and the number of P2Ps accelerated to climb. It was not until the CCP State Council issued the Implementation Plan for the Special Rectification of Internet Financial Risks in December 2015 after the E RentBao case, followed by dozens of related management measures or regulations in the following years, that the development of China’s online lending industry took a nosedive.
As previously reported, more than 90% of the P2P platforms that burst into flames were supposed to be under the scrutiny and supervision of the industrial and financial sectors, and nearly half of the P2P platforms that burst into flames were operating illegally from their inception – raising funds under the signboard of “consulting”.
On this basis, the correlation between the development curve of China’s P2P industry and the authorities’ policy and regulatory changes reveals that the rapid development of China’s online lending platforms was mainly driven by the government; the fraudulent mess of P2P platforms until they were cleared across the board was a direct result of the authorities’ indulgence in regulation.
A look at the dark hand behind China’s P2P
In addition to the propaganda and endorsement of the Chinese Communist Party, the economic push, or temptation, behind the erstwhile rise of China’s P2P platforms is more important.
According to public data from China’s banking industry, during the rise of China’s P2P industry, i.e. between 2007 and 2016, the average annual growth rate of M2 (broad money) in China’s economy reached 15%, while bank fixed rates were less than 5% during the same period. This is equivalent to the money in the hands of Chinese people, if kept in the bank, depreciated by 10% every year.
The high returns (interest rates) offered by the P2P industry are certainly quite attractive to the average Chinese citizen who does not have many investment options.
According to a statistical analysis of the interest rates of 9,108 online lending platforms publicly available on the internet, 22% are below 10%, 76% are between 10-25% and 2% are above 25%. p2p returns are generally several times, or even more than 10 times, higher than bank deposit rates during the same period.
In order to compete for investment, P2P platforms can only offer higher interest rates, which also makes the overall business situation of China’s online lending industry worsen, many platforms from the beginning is to borrow the old to pay back the new Ponzi scheme.
According to financial commentator Tang Ao, the Chinese Communist Party’s vigorous propaganda and high-level government endorsements have made high-interest P2P lures irresistible to ordinary Chinese – the return on investment is no lower than the stock market, and the government guarantee should be low risk. Tang Ao pointed out that the monetary, financial and regulatory policies implemented by the CCP in the past were the driving force behind the development of P2P; for the general Chinese people, it was equivalent to “inviting the king into the jar”, tempting or forcing private wealth to rush into the black hole of P2P.
The biggest problem left in China’s P2P industry, which has been repeatedly “zeroed out”, is how to repay the hundreds of billions of investors’ loans.
While the CCP has launched a political campaign to zero out P2P, it has never made any statements about how to repay the loans. Several interviews have reported that millions of Chinese P2P investment victims have now become the focus of the authorities’ “stability maintenance” efforts.
It is worth noting that many P2P platforms have been ruled by the authorities to have illegally absorbed public deposits in the process of the CCP’s P2P cleanup.
However, according to the “Interpretation on Several Issues Concerning the Specific Application of Law in Criminal Cases of Illegal Fund Raising” issued by the Supreme Court on December 13, 2010 (the original CCP law), the following four conditions must be met in order to be considered as “illegal absorption of public deposits or disguised absorption of public deposits”: absorbing funds without the approval of the relevant authorities according to the law or using the form of legal operation; publicly advertising to the public through the media, promotion meetings, leaflets, cell phone text messages, etc.; promising to repay capital and interest or pay returns in money, in kind, equity, etc. within a certain period of time; and absorbing funds from the public, i.e., unspecified objects in society.
Comparing with this judicial interpretation of the Supreme Court, the majority of the 15,000 online lending platforms spawned by the CCP’s “financial innovation” meet the four conditions for the crime of “illegally absorbing public deposits” at the same time.
In other words, according to the CCP’s own law, the Chinese P2P platforms that were first “innovated” and then “zeroed out” by the CCP are, from beginning to end, tools and puppets arranged by the CCP to commit the crime of “illegal absorption of public deposits. “The victims are the Chinese people and private wealth.
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