The Development Trend And Risk Prevention Of China’s P2P Industry

A website that named “Zopa” was launched in2005in England and it has beenknown as the pioneer of the P2P lending platform. In2007, Chinese first P2Plending platform “PP Dai” was founded, since then this business model was intothe process of the soaring development. Especially since2011，the P2P lendingindustry had shown the dramatically explosive growth, both the number and thetrading volume of P2P company grew by4-5times per year. This soaringdevelopment revitalized the private lending which existed long termunderground.The rapidly development of China P2P industry originated from its enormousmarket prospect. In terms of the stock, the private lending market expected to atleast RMB5trillion, which provided the basis for the growth of P2P lending. Interms of the increment, the demands of lots of mini companies and thedisadvantaged classes in finance were long pent-up, which forms the growthspace. Nay more, relied on the IT advancement and internet thought, P2Plending industry made great contributions to financial disintermediation,information sharing and improvement in capital utilization efficiency. And it hasdemonstrated the distinct characteristic of social benefit and social value byadhering to the inclusive finance and complying with the direction of the nationalfinancial policy.With the prosperous development, some serious risks are undermining theChinese P2P lending industry, which includes the internal risks such as lack ofthe maturing individual credit ranking system, term mismatch and liquidity risk,short of risk consciousness, excess capital leverage, the overlook of the securityfor the clients’ capital and the internet technique safety risk. As well as theoutside risks such as the unclear supervising entities, the flawed regulations andlaws, the disordered competition, the risk transfer within cooperative entitiesand the risk of interest rate marketization.Foreign P2P lending industry had the same experiences and risks as China, but ithas been establishing some advanced experiences in the management andregulation which could provide us some references. As the typical mode ofinternet finance, P2P lending represents the financial innovation direction, andtherefore the regulation to it should reflect the appropriate risk tolerance. A RiskPrevention System should be set up to help the P2P lending industry healthydevelopment.“Encourage innovation, regulate the development, do not superviseexcessively and keep the systematic risk away” were the official attitude.An effective Prevention System should be build up by five level from bottom toup. Firstly, improve investor education and enhance the risk consciousness.Secondly, focus on internal control and reduce the internal risk. Thirdly, improvesocial credit information system, create an upstanding market environment.Fourthly, promote the industry self-discipline and cooperation. Finally, prefect laws and regulations, strengthen government supervision.