| P2P (Peer-to-Peer) lending was introduced to allow unrelated individuals to lend or borrow from each other directly using an Internet-based platform without going through a traditional financial intermediaries, such as a bank or other financial institutions. The British loan provider Zopa, the milestone of the birth of the P2P lending, started their business in March 2005. By the end of 2013, the turnover of Zopa had surged at an average annual rate of more than 50%. The first American P2P lending loan provider Prosper was founded in 2006. In the same year, CREDITEASE, China’s first P2P lending company, had also started their business. Lending Club, the largest P2P network lending platform provider around the globe, was set up in 2007. In the same year, PPDai website opened, which is the first P2P network lending platform of China. Since 2011, the P2P network lending industry in China has grown at an average annual speed of 500%. The annual turnover exceeded 100 billion RMB in 2013. By the end of June 2014, the number of China’s P2P network lending platform provider was more than 900.In foreign countries, the fast growing development of P2P lending business is benefiting from a relatively mature credit system and the modern developed Internet technology. As a result, the lenders can check the borrower’s credit histories and determine an appropriate loan rate on line. Thanks to the modern developed Internet technology, the cost of exchanging information has been reduced significantly. It speeds up the application process and helps balancing the supply and demand. However, checking credit histories manually is still widely used by most of the P2P lending business in China. Therefore comparing with the traditional financial industry, the advantage of Internet Finance is not obvious. In China finance disintermediation is the cause for the dramatic development of P2P lending. Some access restrictions contribute to high profits in our financial industry. P2P lending providers gain high profits through "regulatory arbitrage", doing similar business commercial banks usually do. In this context, the P2P lending in China has typical Chinese characteristics and the associated risk is also more complex.This paper has its focus on solving the realistic problems, as well as exploring the generative logic and analyzing the potential risks of P2P lending in China, and then recommends regulatory measures. This paper will discuss three topics progressively: what P2P lending is in China; the risks involved in this; the measures of supervision and management for P2P lending in China. The paper will explain the first topic by using the qualitative and quantitative methods in Chapter 3&4. In qualitative section, the differences between domestic and foreign P2P lending business types will be discussed. While in quantitative section, a statistic analysis of 714 P2P network lending platforms will be studied from the angle of industry, platform, investors, borrowers and troubled platforms.20 of out those 714 firms will be further analyzed. The involved risk issues will be discussed in Chapter 5. The risk of China’s P2P lending is divided into the risk induced by the borrower, the investor, the warrantor and the platform itself. The above classification basically covers all the risks in China’s P2P lending. Moreover, an optimization model will be introduced including different parties, such as borrower, investors, commercial banks and P2P lending company. This model can be used to analyze the risk of P2P lending and the influence of institutional change quantitatively. The third topic regarding regulatory measures will be introduced in Chapter 6. Some regulations for P2P lending market in the Great Britain and the USA will be carefully studied. In the end, recommendations and countermeasures will be given for regulatory authorities to make corresponding future policies.
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