China’s online lenders are in the cross hairs as regulators take aim at the once-booming business of arranging loans for stock market investment.
The China Securities Regulatory Commission said over the weekend that it would ban online sites from handing out new loans for share purchases, blaming some “information technology service providers” for illegal securities practices which it said contributed to the recent stock market crash.
Combined with the recent drop-off in demand for borrowing to purchase shares, the regulator’s action is likely to add to the troubles of an industry where some lenders have already gone out of business.
“China’s online peer-to-peer lenders are hit by a double whammy,” said Xu Hongwei, chief executive officer of Yingcan Group, a research firm that tracks China’s more than
2,000 P2P platforms. “The regulator pretty much gave a death penalty to the stock-financing business.”
Until recently, the CSRC showed little interest in curbing China’s online lenders, who helped fuel a market roller-coaster that saw the benchmark Shanghai Composite index rallying more than 150 percent in the 12 months through June 12 before plunging.
Online sites offered 3.1 billion yuan ($499 million) of new loans for stock investment in
May, about six times the amount offered in January, according to Yingcan data. Many sites quickly adjusted their businesses to emphasize high interest lending for stock market speculation, rather than the traditional P2P loans for small Chinese companies.
As the share market started to slide last month, new loans began to dry up. Online lending for share purchases fell 15 percent in the week beginning June 22, and another
10 percent the following week, according to Yingcan data.
A similar unwinding has been seen in the funding offered by China’s stockbroking firms. The margin finance balance on the Shanghai