Bloomberg reports that China is preparing to launch a large-scale purge of the $176 billion peer-to-peer lending market, closing small- and medium-sized firms that the government considers to be a threat to financial and social stability.
Citing unnamed sources with knowledge of the matter, Bloomberg says that Beijing has become alarmed at the sharp rise in defaults in the P2P market this year and the accompanying rise in public anger this has caused.
The clampdown on the industry will expand a previous purge of lenders in Hangzhou to the national level, dramatically shrinking the size of the market.
The P2P market grew rapidly in China due to lax regulation and the fact that consumers and private businesses often struggled to access other sources of lending. P2P platforms also offered high yields, with consumers often assuming that the government would act as a backstop for struggling firms.
However, the slowdown in the Chinese economy and the crackdown on financial risk this year have caused serious problems for peer-to-peer lenders. More than 80% of the country’s 6,200 P2P platforms have now folded or encountered “serious difficulties,” according to research firm Yingcan Group.