About 250 online peer-to-peer lending platforms went insolvent during recent months, as investors withdrew from China's P2P lending market. The collapse started as the government is tightening its regulatory grip on the P2P sector, thereby raising fears among investors that P2P platforms will face new problems. The industry was already struggling to shake the damage from numerous fraud cases (e.g. Ponzi schemes). Investors who have lost their money tried to organise demonstrations to show their displeasure, only to be blocked by officials.
P2P platforms intermediate loans from private individuals or firms to borrowers who otherwise lack access to credit. Due to the increased risk involved, the lending rates and yields are significantly higher than bank loans or bank deposits. While the P2P market limits the size of a single corporate loan to 1 million yuan (145,000 dollars) and a total of 5 million yuan in P2P loans per borrower, the amounts lost in a single platform collapse can be prodigious. Reuters' sources estimate the Chinese P2P loan stock at close to 220 billion dollars, an amount greater than all of the P2P lending market in the rest of the world. While over 1,800 platforms in China are still standing since the first waves of platform collapses, most are not expected to survive under tightened regulatory conditions.
Reuters reports that financial supervision officials have turned to the government's largest asset management companies (bad banks) for assistance in cleaning up the P2P sector mess.