The Chinese online peer-to-peer (P2P) lending industry is a “disaster zone” of fraudulent activity and illegal fundraising, according to a senior official at the country’s Ministry of Public Security.

Wang Zhiguang, deputy director of the economic crimes investigation unit at the ministry, made the comment on Wednesday at a press conference organized by the Supreme People’s Procuratorate in Beijing, according to state media outlet Xinhua (in Chinese).

National public security agencies filed more than 10,000 cases related to illegal fundraising in 2018, a 22% year-on-year increase, Xinhua cites him as saying. The cases involved an estimated RMB 300 billion (around $44.5 billion), 115% higher than in 2017. Wealth management, investment, and private equity services are also potentially problematic sectors, he said.

In recent years, fraudulent fundraising activities have forced authorities to tighten regulations on emerging industries such as online P2P lending. Previously, a lack of oversight had been blamed for the rise of illegal lending platforms, including Ezubao, a Ponzi scheme that raised around $7.6 billion from 900,000 investors in 2017.

Since then, Chinese regulators have launched an offensive against online lenders, which is expected to result in 70% all of P2P lending businesses being shut down by the end of the year.

Wang said that the term “financial innovation,” which is often used by emerging businesses including those in the online lending sector, has been adopted to confuse unsuspecting victims. In other cases, fraudsters have used software to falsify financial dealings to dupe others.

As internet technologies continue to develop at a rapid pace, Wang said, criminals have been able to get their hands on highly efficient modern communication and financial tools that have aided the expansion of their operations.

China’s crypto space has also been affected. After banning initial coin offerings in 2017, the People’s Bank of China in December warned the public against security token offerings (STOs), a new form of crypto fundraising in which tokens are backed by assets, saying that they are illegal.

Nicole Jao is a reporter based in Beijing. She’s passionate about emerging trends, news, and stories of human interest within the world of technology. Connect with her on Twitter or via email: nicole.jao.iting@gmail.com.

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