Online P2P Lending and Regulatory Responses in China: Opportunities and Challenges

Abstract

As a main form of the Fintech industry, China’s online P2P lending market has undergone a period of explosive growth in the past few years to become the largest in the world, with online lending platforms having mushroomed across the country. This is a consequence of the simultaneous emergence of three key factors, namely deep penetration of internet, large supply of funds and unmet financial needs. The market exhibits several distinctive features in terms of the size of platforms, the level of market concentration and business models. As online lending gathers moment in China, many problems have come into light. China has recently established a relatively complete regulatory regime for online lending, introducing a number of significant changes, such as the restriction on the business model that can be adopted by platforms, registration requirements, custodian requirements, information disclosure requirements and lending limits. The new regime will have far-reaching implications, including a reshuffling of the market and more collaboration between online lending platforms and traditional banks. A comparative analysis of the Chinese experience with those in other jurisdictions such as the US, the UK, Hong Kong and Japan is conducted to examine the extent to which the new regime is likely to achieve a proper balance between its two main objectives, namely facilitating the growth of the online lending market and protecting financial consumers. While the new regime is generally sound, its efficacy will ultimately depend on how it is enforced in practice.