Our regularly scheduled column is having a week off. In its place, may we recommend a look at the TechNode archives? Our suggested topic: P2P lending.

The peer-to-peer lending fad is something a lot of China tech has tried to forget, but, as TechBuzz China’s Rui Ma wrote recently, you can’t understand what’s happening with Ant Group and fintech regulation without it.

The online P2P industry went from the launch of pioneer platform PPDAI in 2007 to the near-total ban of the industry in 2019, leaving behind a trail of angry and duped investors. The decision to put Ant under strict new regulations—forcing it to drop its IPO and drastically changing its business model—likely reflects fears of the consequences of letting finance grow faster than oversight.

Clearly, regulators are once burned, twice shy. But does Ant really have anything in common with the industry a senior police official later called “a disaster zone of fraud”? We’ll be back next week to examine that question with a look at the financial issues in play with new regulations on fintech.

TechNode covered the story from start to finish. Here’s a timeline of the best of our coverage:

P2P lending: 2012-19

China is facing two extremes of P2P platforms going up and down: record-breaking funding rounds (Lufax, $10 billion) and record-breaking Ponzi schemes (Ezubao, $7.6 billion).

Despite the concerns, it is hard to forecast a sudden downfall of P2P platforms in a country where outstanding loans totaled RMB 816.2 billion at the end of December 2016 from P2P lending platforms alone. Using those platforms have already become a habitual thing for Chinese public, especially those who don’t fall into China’s traditional banking categories.

  • May 12, 2017:China’s average P2P investors are becoming the opposite of what you’d expect
    Indeed, 2017 saw confidence in the industry rise: average contributions by investors increased, while the platforms’ user base broadened, adding more female, young, or rural users.
  • Aug 2, 2018:The rise and fall of China’s online P2P lending” 
    [Editor: Recommended—if you read one piece on P2P lending, make it this one!]

    2017 was the last hurrah for P2P. By 2018, it was a national scandal, with investors who’d lost money in platform collapses demanding justice. In the face of public anger, regulators opened a “rectification campaign” in late 2017, giving P2P platforms until June 2018 to get in shape. Instead, hundreds defaulted on their obligations, causing losses—and anger—to spread.

Some of them protested in front of police stations and chanted the Chinese national anthem March of the Volunteers, trying to pressure the authorities. Some of them organized online investor rights groups, making a collective effort to get back the money. They’ve made headlines of domestic media and sparked intense online debates on who will be responsible for the loss and where the industry is heading.

“P2P lending was not internet finance from the start. It is just an industry of illegal financing businesses that have websites. We shouldn’t blame the problems all on internet finance. Of course, internet finance still has a lot of room for improvement.”

—Jack Ma, chairman of Alibaba

Haunting the fintech industry

Was P2P always doomed? From the start, we could see that the industry was under-regulated: thousands of companies got into the game with little to no oversight, many scammers among them; others simply managed their finances imprudently. But if you asked Dianrong or Fincera, they said they got a bad rap: once regulators lost faith in P2P lending, they raised requirements so high that even good platforms couldn’t survive.

The industry has left a legacy, introducing many consumers to micro-borrowing for the first time, and helping to pave the way for routine borrowing to fund consumption—it helped build the market that Ant is now making billions from. But it is remembered chiefly as a cautionary tale.

For regulators, it’s a lesson about the risks of letting markets run wild. For investors, it’s a lesson that what’s booming today could be illegal tomorrow.

David Cohen is a former acting editor in chief at TechNode. Since 2010, he has covered China as a writer and editor at outlets including the Diplomat, the Jamestown Foundation, and China Policy. He’s...