By Li Hongmei
Investors in P2P platforms in China have become more selective after a shakeout in the fourth quarter of 2013. Many platforms pledging higher investment returns have been ousted; others have survived despite their lower yield rates.
In response to the situation, Guo Xintao, CEO of P2P firm Yinker.com, recently joined forces with partners in launching a legal assistance fund for handling disputes arising from platform failures. "We hope to help firms in the line cope with their financial problems, thereby avoiding the collective distrust of the line among investors," said Guo, according to the Shanghai-based Economic Observer.
The total transaction value of major P2P platforms in China reached 49 billion yuan (US$8.1 billion) in 2013, with an average interest rate reaching 23.24%, according to the report.
Seventy- four platforms had difficulty meeting the demand from cash withdrawals, mostly in the fourth quarter. The situation is gravest in Zhejiang province, where 17 P2P firms bit the dust in 2013, followed by Guangdong with 11 and Jiangsu with nine. December casualties fell to 10, compared with 30 in November and 18 in October.
Xu Hongwei, CEO of Wangdaizhijia.com, predicted that the line will confront an even more dire situation in 2014, when bigger P2P firms will start falling before entering the mergers and acquisition phase in 2015.
All but three of the 74 closed P2P firms had less than one year of history but had incurred huge debts before their closure. According to a study by Wangdaizhijia, 40 platforms in financial trouble had accounts payable totaling 1.15 billion yuan (US$190 million).
To contain the damage of problem P2P firms towards society, an official from the People's Bank of China noted that the central bank will ascertain the role of P2P platforms as a broker. They will be forbidden from providing loaning guarantees, forming funding pools and soliciting deposits from the public. Another official from the central bank pointed out that eventually P2P platforms will be incorporated into the scope of financial supervision.
Figures from Wangdaizhijia reveal that most P2P firms in financial straits offered an annualized yield rate exceeding 40%. General interest rates of the 90 major P2P platforms averaged 23.25% in 2013, with some offering general interest rates less than 10%.
