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Why did the Peer-to-peer Lending Market Fail in China?

Author

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  • Sunny Yangguang Huang

    (Assistant Professor, Department of Economics and IEMS Faculty Associate
    The Hong Kong University of Science and Technology)

Abstract

From 2007 to 2020, China's Peer-to-peer lending market experienced a drastic boom and bust, and ended up with zero surviving platforms. The key reason for the collapse of China's P2P sector was that almost all P2P platforms deviate from the role of information intermediary and became shadow banks offering principal guarantee. As the number of P2P platforms increases, each platform has a greater incentive to offer principal guarantee in responses to fierce competition and the lure of financial fraud under limited regulatory capacity. This hurts the investors' and social welfare. The existence of naive investors makes offering principal guarantee more attractive to platforms. Promoting information disclosure may not solve the problem.

Suggested Citation

  • Sunny Yangguang Huang, 2022. "Why did the Peer-to-peer Lending Market Fail in China?," HKUST IEMS Thought Leadership Brief Series 2022-61, HKUST Institute for Emerging Market Studies, revised Jan 2022.
    • Handle: RePEc:hku:briefs:202261
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