P2P Lending Platforms Are Growing in China

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    Despite regulatory uncertainty, an overly prolonged bearish season, and an overall drop in cryptocurrency liquidity in the country, China is experiencing a surge in Peer to Peer (P2P) cryptocurrency lending.

    Peer-to-Peer cryptocurrency lending gains popularity in China

    PPDAI Group, China’s first online lending platform launched in 2007 and proceeded to go public on the New York Stock Exchange in late 2017.

    Ever since, the industry has gone through rapid growth, in January 2016, there were 3,383 platforms in business with combined monthly transactions reaching 130 billion RMB, according to Home of Online Lending.

    Reasons behind the surge in P2P lending platforms

    P2P lending is a tempting and easy investment option because the loans usually promise 8-12 percent interest rates, of which many mature within a year or less.

    These interest rates are much higher than the 2.75 percent rate for three-year fixed deposits found at most banks in China.

    Another reason behind the surge of P2P lending platforms in the country is the fact that P2P lending is friendlier to smaller businesses since major banks in China generally prefer state-owned enterprises or large companies.

    Hu Jie of the Shanghai Institute of Advanced Finance cited a joint report by the Development Bank of Singapore and Ernst & Young (2016), that only 20-25 percent of bank loans went out to small to medium-sized enterprises.

    Hu Jie also noted that 60 percent of China’s gross domestic product is derived from these small to medium-sized enterprises. Hu Jie noted that:

    “currently, digital currency mortgage lending business mostly occurs only in the currency circle. One party has funds (or digital currency) to seek lending, and the other party lacks funds (or digital currency) to borrow. Digital assets can be used for mortgages, and such private trading behaviors can be allowed.”

    Regardless of the growth recorded in this sector, Zhang a veteran of the cryptocurrency industry stated:

    “At present, most of the market only recognizes two major currencies, Bitcoin and Ethereum. This BUSINESS is currently earning interest.”

    On the positive side, Zhang described those lending through the platform as comprising long-term cryptocurrencies holders who aren’t interesting in trading the markets in the short term.




    Nascent Industry growing despite regulatory uncertainty

    Despite regulatory uncertainty in China, entrepreneurs are reportedly eying opportunities in the nascent industry.

    Hu Jie emphasized the potential contingencies associated with regulation of cryptocurrencies in the country. He stated:

    “if an entity specializes in this business and engages in this type of lending and financial management, it needs to have corresponding qualifications and conditions. Otherwise, it may be suspected of illegal lending and illegal business.”

    The report published by the Chinese media outlet, Sohu, emphasized the risk posed by regulations in the country, and described those launching operations in the P2P crypto loan industry as “hardening their swords”.

    Despite the current bearish market, the media outlet cited industry insiders and estimated that there are currently more than twenty startups operating in the cryptocurrency loan industry.

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