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China’s Once-Hot Peer-to-Peer Lending Business Is Withering

Started by Peter, February 01, 2020, 11:00:00 PM

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Article in WSJ today about China's P2P lending businesses, and how they're dying off." class="bbc_link" target="_blank">
The article is paywalled.  I've included a few snips below.

I've written here before about how many (huuuuge numbers) of these P2P businesses started up in China.  It was clear this was a bubble.  We use the term "Wild West" to describe an unregulated frenzy, but maybe we should change that to "Wild East".



I don't know much about the Chinese financial system, but I suspect part of the reason it grew faster is not just regulatory differences but also they have less established means of accessing credit. Our lending ecosystem is quite mature


Chinese p2p lenders are not failing, they are being killed. I haven't seen any data to show these lenders had unsustainable default rates or lack of lending capital that a typical non-regulator driven failure would have. Non-banking lenders and shadow lenders are primary lenders for majority of people. IMO, crackdown is politically driven, the banking lenders being politically connected and influential, regulators are doing their bidding. Majority of non-banking lenders being killed were smaller entities with regional coverage. When there are few thousand lenders, you are bound to have some failures. I don't believe non-regulator driven failure rate in China is that much different than US and European failures.

Particularly in US, smaller lenders never got the foothold because regulations were already stacked against them. There is no way even larger players like Lending Club and Prosper could compete against GS backed Marcus and other banking lenders. Established financial institutions have large enough regulatory moat to protect their business.


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A consistent theme we have seen is younger countries skip the innovations of old and go straight to the new stuff. This has to do with a lack of infrastructure and generally the old innovations take more infrastructure. For example, you see this in many countries where they skipped land lines straight to cell phones. In China, everyone is using Fintech.

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