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 much evidence that the Chinese Communist Party (CCP) is sending soldiers from the People’s Liberation Army (PLA) to support Russia’s invasion of Ukraine — and is learning lessons for a future war against Taiwan. Until now, the CCP has claimed that they have not sent PLA personnel to support Russian aggression. On 18 April, Ukrainian President Volodymyr Zelinskiy announced that the CCP is supplying war supplies such as gunpowder, artillery, and weapons subcomponents to Russia. When Zelinskiy announced on 9 April that the Ukrainian Army had captured two Chinese nationals fighting with Russians on the front line with details
On a quiet lane in Taipei’s central Daan District (大安), an otherwise unremarkable high-rise is marked by a police guard and a tawdry A4 printout from the Ministry of Foreign Affairs indicating an “embassy area.” Keen observers would see the emblem of the Holy See, one of Taiwan’s 12 so-called “diplomatic allies.” Unlike Taipei’s other embassies and quasi-consulates, no national flag flies there, nor is there a plaque indicating what country’s embassy this is. Visitors hoping to sign a condolence book for the late Pope Francis would instead have to visit the Italian Trade Office, adjacent to Taipei 101. The death of
By now, most of Taiwan has heard Taipei Mayor Chiang Wan-an’s (蔣萬安) threats to initiate a vote of no confidence against the Cabinet. His rationale is that the Democratic Progressive Party (DPP)-led government’s investigation into alleged signature forgery in the Chinese Nationalist Party’s (KMT) recall campaign constitutes “political persecution.” I sincerely hope he goes through with it. The opposition currently holds a majority in the Legislative Yuan, so the initiation of a no-confidence motion and its passage should be entirely within reach. If Chiang truly believes that the government is overreaching, abusing its power and targeting political opponents — then
The Chinese Nationalist Party (KMT), joined by the Taiwan People’s Party (TPP), held a protest on Saturday on Ketagalan Boulevard in Taipei. They were essentially standing for the Chinese Communist Party (CCP), which is anxious about the mass recall campaign against KMT legislators. President William Lai (賴清德) said that if the opposition parties truly wanted to fight dictatorship, they should do so in Tiananmen Square — and at the very least, refrain from groveling to Chinese officials during their visits to China, alluding to meetings between KMT members and Chinese authorities. Now that China has been defined as a foreign hostile force,
RSS