Despite efforts to clean up the country’s P2P lending space, another Chinese P2P lending site, Esudai (e速贷), was shut down on Wednesday amid embezzlement claims.
According to a statement by local police in Huizhou, Esudai is accused of illegally collecting deposits and “absorbing” hundreds of millions of RMB. Thirteen executives from Guangdong Huirong Investment Co., the company responsible for Esudai, have been detained.
“As Huizhou’s first and largest P2P platform, Esudai will cooperate with the compliance inspection and supervision departments, and work together to promote the healthy development of the industry,” stated Esudai on its website a week earlier when investigations began.
The company called the inspection “routine” and said that the company’s senior executives and select employees were working to help police with their investigation. “Once the investigations conclude, we’ll send out a formal explanation on what happened,” stated the company. “Please understand…and do not spread rumors.”
A spokesperson from Esudai could not be reached in time for comment today.
In China’s turbulent P2P lending landscape, Esudai’s case rings all too familiar. In January, twenty-one executives from P2P lending platform Ezubao (e租宝) were arrested for stealing 50 billion RMB (about $7.6 billion USD) from almost one million investors. Though Ezubao’s case is exceptional, legal cases involving P2P lending in China are a common occurrence. According to a work report released by China’s Supreme People’s Court in March, China’s court system processed a total of 1.42 million cases that had to do with P2P lending in 2015.
In December, the Chinese government published a lengthy document on managing and regulating online P2P platforms (link in Chinese). In particular, the government defined P2P lending platforms as providers of “information services”, responsible for providing accurate information to both lenders and borrowers, not managing or handling funds. Instead, the transaction of money would be done through third-party banks. P2P lending platforms not in accordance with the new policies would have 18 months to change.
However, Esudai’s case shows how government regulation of P2P lending in China is still inadequate. Even before the government announced its new policies on P2P lending in December, Esudai was partnering with Guangdong Nanyue Bank (广东南粤银行) to process transactions between borrowers and lenders on its platform. According to Esudai, partnering with the bank would “increase fund security” and ” prevent the platform from ‘running away’ [with investor money]”.
For the Chinese government, which is seeking to encourage innovation in its finance sector, preventing cases like Esudai and Ezubao is imperative. As Chinese officials continue to contend with the country’s fraud-ridden P2P lending sector, tightening regulations without smothering the nascent industry will be a fine balancing act.
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