The China Perspective

The China Perspective
Henry Yin, Managing Director, CreditEase

Mr. Yin noted the size of China’s P2P market is huge, with loan balances totaling 50 billion USD as of Q3 2015. This sum represents just 0.25 percent of China’s total debt market, so the growth potential of P2P is huge, he added. Both the size and growth rate of the market constantly exceed the most optimistic forecasts, he said.

Investors are solely retail, mainly represented by wealthy individuals, Mr. Yin observed. As the market has matured, rates for retail investors have decreased, but confidence has increased, he said. P2P in China is the only option for financing underbanked segments, as on-balance sheet lending to these segments is not developed due to regulation and cultural reasons, he added.

Opportunities for institutional investors are blocked by regulation in particular, Mr. Yin said. Returns decreased between 2014 and 2015, but P2P is still the highest return option for investing individuals. At the same time, it is lower-risk than other asset classes because it is highly diversified, he added.

There are more than 2,000 local P2P platforms in China, Mr. Yin said, with the 50 largest platforms accounting for 50 percent of the market. Restructuring is underway across the industry, with 700 players going bankrupt or otherwise terminating operations in 2015.

Usage of independent credit reporting agencies has been encouraged by regulators, Mr. Yin said. This provides better opportunities for international players, though entry into the Chinese market would likely require partnership with a local entity.

Future challenges to China’s P2P sector include a slowing economy and increasing credit risk. Overall, however, China’s general economy is transitioning from manufacturing and production to service providers and entrepreneurship, encouraging the development of P2P as a new asset class.