Chinese authorities have reportedly notified more than 40 online peer-to-peer (P2P) lenders in Shanghai to scale down their businesses and exit the market, Bloomberg reported.

Why it matters: The once-burgeoning P2P lending market has shrunk significantly amid an industry-wide clampdown that has been ongoing for two years. China’s financial hub, Shanghai, is home to some of the country’s largest online lenders.

  • China’s crackdown on online lending pruned more than half of all the platforms from the market. Regulators introduced stricter rules aiming to clamp down illegal and risky lending practices in 2017.

Details: The latest move is affecting some of the largest players, including Dianrong and Ping An-backed Lufax.

  • Both Shanghai-based companies reportedly received “verbal directives” in recent meetings with the financial services bureau to stop issuing new products and wind down their existing lending operations, according to the report citing unidentified sources. No specific timeline was provided.
  • Both Lufax and Dianrong declined to comment.
  • Shanghai Internet Finance Industry Association issued a statement on Wednesday, denying that the city’s P2P platforms signed an agreement on Oct. 28 to terminate their operations, a claim reportedly made by internet finance platform Huaxia Finance in a notice to investors. The company denied ever issuing the notice.

Context: Several regional governments have intensified the clampdown on online lenders.

  • Authorities have launched a pilot program to register online lending platforms in a national monitoring system by next year. Platforms have to meet specific requirements such as registered capital, risk reserves, and lender risk compensation. Those that fail to comply will be forced to close down.
  • According to Shanghai-based online lending market research firm, China’s surviving P2P lenders had less than RMB 610 billion ($86 billion) in outstanding loans as of the end of September.
  • Some provincial governments have adopted a more radical approach by imposing a ban on all P2P lending platforms. For example, Hunan province announced an outright ban on all platforms earlier this month. In the same week, the Shandong provincial government issued a notice saying that none of the lending operators investigated by local authorities have complied with regulations and threatened to impose a ban on all platforms.

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:

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