China Issues Harsh Regulations For Peer-to-peer Lending

By August 25, 2016Bitcoin Business
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Peer-to-peer Lending China

Peer-to-peer lending has always been a very popular trend in China. That is not entirely surprising, as the country is keen on innovation and embracing new trends. But there have been a fair amount of problems with P2P lending in China over the past few months. New rules have been announced, which will put a vice grip on this innovative business model.

At its core, any peer-to-peer service should not shut down regulated by a government. When conducting a P2P transaction, both parties should automatically assume responsibility for whatever happens to the money in the end. Moreover, users should be able to draft their own set of contracts to determine what the deal entails and how the repayment plan will work.

Peer-to-peer Lending Rules Are Very Harsh

Over in China, things are very different, as the government has a say in all matters. Not only do they control the Internet, but there is also a firm grip on the financial sector. Due to the recent peer-to-peer lending issues in the country, a new set of rules has been drafted. Unfortunately, they do not bear good news by any means.

Mainly the online peer-to-peer lending industry will see some significant changes. That means companies can no longer accept public deposits, nor can they pool investors’ money to support their own projects. That latter one seems only natural, as there are plenty of crowdfunding options to raise [additional] capital for a project.

But there is more, as it is no longer allowed to sell financial or wealth management products. A fascinating change, and one that was direly needed as well. Over the past few years, most wealth management programs and products have turned into Ponzi or Pyramid schemes. It was only a matter of time until regulation would catch up with this illicit behavior.

An Opportunity for Bitcoin?

Moreover, companies can no longer issue asset-backed securities, and lenders must use third-party banks. This latter change is done so that institutions can keep an eye on investors’ money. To some people, this will seem like a strange decision. At the same time, it helps to keep money in Chinese hands, rather than seeing it leave the country.

These new regulations will also have an impact on Bitcoin in China. Since cryptocurrency does not fall under these rules, it may become the new peer-to-peer lending option. Using a peer-to-peer currency to conduct P2P lending makes a lot more sense than relying on traditional financial solutions.

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