China has over the past few years experienced periodic outbreaks of defaults by online peer-to-peer (P2P) lending platforms, with the scale increasing each time.
Another such wave has struck in the past few weeks, with several large platforms going bankrupt. The most influential of these was Tuandai, based in Dongguan, Guangdong Province.
Following Tuandai’s default announcement, more than 1,000 investors protested in front of the Dongguan People’s Government building, where the Chinese Public Security Bureau dispatched several hundred officers to stand guard.
Since last month, P2P lending platforms are reported to have gone into default in many of China’s major cities, including Dongguan, Chengdu, Shenzhen, Hefei and Hangzhou.
The companies include KDW, Formax, Limin, Lingqianguan, Zhongjin Gold, QBM and ZCT, but the most startling is the sudden demise of Tuandai, which involved loans exceeding 14.5 billion yuan (US$2.16 billion), with 220,000 investors likely to lose money.
Tuandai started out as one of China’s Internet financial technology unicorns — start-ups valued in excess of US$1 billion.
Its chief executive officer, Tang Jun (唐軍), is a start-up mentor at an incubator for young innovators and entrepreneurs in Dongguan. Tang has received numerous official accolades and often teaches classes for people born after 1985 on how to set up and finance a company.
However, this wave of large-scale defaults might have happened because lenders have used start-ups for illegal fundraising.
P2P online lending platforms normally function as intermediaries between lenders and borrowers, while collecting a fee for the service. This mode of operation does not create much scope for large-scale defaults to occur.
However, the firms that have run into trouble were not content to just earn service fees. Some of them have used large numbers of dummy accounts to borrow money through their platforms and divert it to other purposes, while continually taking out new loans to repay old ones.
To borrow money, they have to attract lenders by offering higher interest rates, but any Ponzi scheme is bound to collapse eventually.
In theory, P2P lending is good for lender and borrower, because it enables them to save on the operational costs involved in bank loans. This allows lenders to earn a higher rate of interest than they would from a bank deposit, while borrowers pay a lower rate of interest than they would on a bank loan.
However, because of a lack of supervision in China, lending platforms are not transparent and can be turned into cash machines for their operators.
In a chain reaction over 42 days following last year’s Dragon Boat Festival, 104 P2P platforms were hit by defaults, with 7 trillion yuan in loans disappearing and tens of thousands of people losing their money.
Now that benchmark company Tuandai has declared that it is in default, it remains to be seen whether this will induce lenders on other platforms to demand their money back, or whether it will trigger a new wave of defaults or sets off wider sociopolitical repercussions.
Honda Chen is an associate research fellow at the Taiwan Academy of Banking and Finance.
Translated by Julian Clegg
There is a modern roadway stretching from central Hargeisa, the capital of Somaliland in the Horn of Africa, to the partially recognized state’s Egal International Airport. Emblazoned on a gold plaque marking the road’s inauguration in July last year, just below the flags of Somaliland and the Republic of China (ROC), is the road’s official name: “Taiwan Avenue.” The first phase of construction of the upgraded road, with new sidewalks and a modern drainage system to reduce flooding, was 70 percent funded by Taipei, which contributed US$1.85 million. That is a relatively modest sum for the effect on international perception, and
At the end of last year, a diplomatic development with consequences reaching well beyond the regional level emerged. Israeli Prime Minister Benjamin Netanyahu declared Israel’s recognition of Somaliland as a sovereign state, paving the way for political, economic and strategic cooperation with the African nation. The diplomatic breakthrough yields, above all, substantial and tangible benefits for the two countries, enhancing Somaliland’s international posture, with a state prepared to champion its bid for broader legitimacy. With Israel’s support, Somaliland might also benefit from the expertise of Israeli companies in fields such as mineral exploration and water management, as underscored by Israeli Minister of
When former president Tsai Ing-wen (蔡英文) first took office in 2016, she set ambitious goals for remaking the energy mix in Taiwan. At the core of this effort was a significant expansion of the percentage of renewable energy generated to keep pace with growing domestic and global demands to reduce emissions. This effort met with broad bipartisan support as all three major parties placed expanding renewable energy at the center of their energy platforms. However, over the past several years partisanship has become a major headwind in realizing a set of energy goals that all three parties profess to want. Tsai
On Sunday, elite free solo climber Alex Honnold — famous worldwide for scaling sheer rock faces without ropes — climbed Taipei 101, once the world’s tallest building and still the most recognizable symbol of Taiwan’s modern identity. Widespread media coverage not only promoted Taiwan, but also saw the Republic of China (ROC) flag fluttering beside the building, breaking through China’s political constraints on Taiwan. That visual impact did not happen by accident. Credit belongs to Taipei 101 chairwoman Janet Chia (賈永婕), who reportedly took the extra step of replacing surrounding flags with the ROC flag ahead of the climb. Just
RSS