Authorities in China have a new target on their crackdown list- the P2P industry, which is worth a whopping $93 billion. In a dramatic turn of events, a prominent Chinese art collector and a billionaire from China surrendered himself to Shanghai police recently.
What happened in Shanghai?
Dai Zhikang is a well-known Chinese billionaire who founded a Shanghai-based art museum. He is also the chairman of Zendai Group as well. He was running Laocaibao, a P2P lending entity that shut operations two weeks ago. Zhikang voluntarily surrendered to police in Shanghai. He was not alone in doing so. Several executives and legal counsels of Zendai Group have also handed themselves over to the police.
On the surface, it looks extreme for the executives of the company to surrender to the authorities like this. However, it is important to note that the company was supposedly raising funds illegally. After suspicion depends, representatives from the company admitted that they had misused investor funds and were not in a position to repay them. The company’s website has been pulled off, and no representatives were available for comment.
Chinese P2P market is cracking
The P2P business in China is under severe stress today after experiencing exponential growth in the past few years. The industry peaked at a monthly transaction volume of Rmb 253 billion in June 2017. However, by July 2019, the monthly volume had fallen to Rmb 90 billion.
Zhikang’s company is a classic case of the bad situation of these companies. It had thousands of customers with over Rmb 3.3 billion in outstanding loans. It ceased operations in the August this year, and the hundreds of investors had to line up in the company’s Shanghai office to recover their cash. As noted earlier, the funds had already been soaked up, and the company had nothing to repay investors.
The current situation of lenders in the country arises because of strict new rules adopted by the authorities, which is leading many of peer-to-peer lending companies to shut down. The firms were accused of embezzling user funds.
Some of these companies have losses running in billions of dollars, and common citizens have even gone out to protest against them. These companies were mostly based out of Hangzhou because of which the authorities had to convert two sports stadiums located in the city to ad hoc petition centers. The number of complaints against these companies was apparently too high for the authorities to handle in regular offices and buildings.
Owing to the crackdown, several Chinese peer-to-peer lenders have either run away from the mainland or have vanished in thin air.