The Washington Post, September 7, 2018: Chinese anger grows as ‘get rich quick’ investment schemes go bust
Many Chinese have been left battered and baffled by the recent collapse of China’s peer-to-peer lending industry, or P2P, a collection of once-unregulated investment houses critics now say were little more than pyramid schemes allowed to flourish for years in China’s overheated economy.
Over the past decade, millions of investors have sunk their cash into thousands of companies like Qiangqiantong (which roughly translates to Get Rich Quick) and others with names such as Money Pig and Qianbao, or Wallet. The promises were the same — steady growth, big dividends and a chance for investors to put financial worries behind. Investors lapped it up. It was once among the largest small-investor cash floods in the world, with as much as $200 billion riding on P2P dreams. Some state-owned banks even helped facilitate payments, and government officials spoke of some of the P2P companies in glowing terms.
But since June, hundreds of upstart investment companies have gone bust — many falling victim to credit runs, risky bets or the same Ponzi-scheme unraveling that brought down fraudsters such as Bernie Madoff.
The rise and fall of the investment mania in China also offer a window into the wild and risky side of China’s economic boom. The money flows — creating a middle class in a generation — but regulations to protect investors and squeeze out swindlers have lagged far behind. In the past few weeks, those defrauded in the failed investment schemes have vented their anger at the government, with protests calling for more accountability and bailouts.
In early August, swindled investors from throughout the country planned a protest outside the China Banking and Insurance Regulatory Commission in Beijing to demand repayment. However, the demonstration was preemptively crippled by security officials, who rounded up potential activists at their homes and workplaces. Some who arrived at the protest site were promptly forced onto buses and carted to a detention center outside the city.
Last week, China’s banking regulator publicly called for urgent measures to clean up the fiscal mess left by the failing peer-to-peer industry. It also laid out a 10-point plan to address the financial risks inherent in the industry.
The new regulations require local governments to set up “communications windows” where investors can complain. New P2P companies and platforms are strictly banned. Those that do not repay their loans will be blacklisted under China’s social-credit rating system.
Ning Tang, founder and chief executive of CreditEase, a majority owner of the investment firm Yirendai, expressed worry that the crackdowns will take down the entire industry, rather than only the bad actors.
If the rules are too broad, he said, it could be “winter for the industry,” he told the Reuters news agency.
“That’s not only hurting the financial system but also the real economy,” he added.
It is also unclear what the new rules might mean for the investors.
