China orders more than 40 peer-to-peer lenders in Shanghai to shut as overhaul continues in US$150 billion financial industry

The regulator in China’s financial centre has ordered Shanghai’s more than 40 peer-to-peer lenders to exit the business, people familiar with the matter said, the latest blow to an online industry that’s shrunk by half this year.

Some of the nation’s biggest platforms including Ping An-backed Lufax and Dianrong.com have been told in recent meetings with Shanghai’s financial services bureau to stop issuing new products and to wind down existing peer-to-peer lending services, the people said, asking not to be identified as the matter is private.

The development indicates China’s determination to overhaul an industry that had more than US$150 billion of loans outstanding and upwards of 50 million investors at its peak, but was plagued by fraud and defaults. Even the biggest players aren’t being spared after the sector came in for special scrutiny under President Xi Jinping’s crackdown on financial risk.

The Shanghai financial services office didn’t respond to requests for comment. Representatives of Dianrong and Lufax, backed by Ping An Insurance (Group), declined to comment.

Shanghai’s internet finance industry body on Wednesday denied a media report saying the city’s P2P platforms signed an agreement to terminate their businesses. The regulator verbally communicated with the platforms without giving a deadline, according to the people familiar.

China’s P2P sector was born during a wave of deregulation that spawned the nation’s shadow banking system. Such online lenders were meant to boost inclusion by giving small borrowers a new financing channel and allowing savers access to double-digit yields.

The crackdown by the authorities has caused financial woes for thousands of individual investors. Some 1,200 players closed down in the first nine months of the year as loans outstanding tumbled 48 per cent, according to the China Banking and Insurance Regulatory Commission (CBIRC).