Authorities in China are launching a renewed crackdown on illegal peer-to-peer (P2P) lending activities through increased investigations and arrests. According to the latest local media reports, Chinese police have apparently frozen more than US$1.5 billion worth of assets in its renewed efforts to combat fraud and illegal financing.
The frozen assets reportedly belong to at least 380 P2P lending companies operating in the country. The new crackdown, codenamed "Fox Hunt," is tracking down different P2P schemes and fraudulent operations. The operation reportedly spans 16 countries, including places like Vietnam and Thailand, where suspects are believed to be hiding. China's Ministry of Public Security revealed that it has arrested 62 suspects implicated in different Chinese P2P financing schemes since last year.
Due to the number of requirements and red tape involved in getting legitimate loans from banks and other financial institutions, some businesses and individuals have chosen to approach P2P lenders. This has resulted in the rapid increase of P2P lenders across the country, most of which are unregulated and lack any kind of oversight. Authorities have escalated their efforts to control this particular sector given President Xi Jinping's call to reduce the country's financial risks.
Under the new operation, hunting down the heads of P2P firms that have fled overseas with assets is a top priority. Those that have been arrested so far are being charged with crimes related to illegal fundraising. P2P lending firms usually get their money from retail investors. The money is then used to loan to individuals and small businesses with extremely high interest rates. Last year, the outstanding loans from P2P businesses were estimated to be around US$217.96 billion.
While there are some P2P lenders that do provide legitimate service, the lack of oversight within the sector has resulted in various Ponzi schemes and massive loss of money for thousands of Chinese citizens. Most P2P companies promise investors massive gains and interest rates, while other present investors with grandiose investment projects with quick returns. According to local authorities, a lot of these people simply disappear or fly overseas when the company goes bust.
Authorities are working hard to continually reduce the number of PSP lenders in the country through continued investigations. Experts believe that the continuing trend may eventually get rid of 70 percent of Chinese P2P lenders this year. In 2015, it is estimated that there were about 3,500 P2P lending firms actively operating in China. According to a prediction from Citigroup, there may eventually be as few as 50 P2P firms that will survive the crackdown.
