The Development of P2P Online Lending in China

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Industry Overview

The online lending is a type of direct lending between individuals and individuals through the internet platform. The online lending platform (or institution), making a business under the law, is a sort of financial information intermediary company focusing on the lending activities through the internet channel. These platforms provide various kinds of services which include information search, information disclosure, credit assessing, information interaction, matching funds between lenders and borrowers and so on for users to achieve the deal of direct lending.

2016 is the ninth year of P2P online lending to keep a foothold in China. In this year, the entire P2P online lending industry has maintained the rapid growth of the loan balance and participants. On the August 24th_{, China’s Bank Regulatory Commission and other three governmental branches formally} published the regulatory document named the Interim Measures for Regulating the Economic

Activities of Information Intermediary Institution in the Online Lending Industry. Accordingly, the

situation of no barriers, no rules and no regulation in this industry ended. The table below shows the development of P2P online lending in China.

Table1：The Chronicle of the Development of P2P Online Lending in China 2007 Shanghai, China Paipaidai was online, opening the first page of online

lending in China

2009 Shenzhen, China My089 went online, and created the principal advance payment model

2010 Beijing, China Renrendai went online, representative online lending platform using risk reserve provision

2011 Shanghai, China Lufax, the first online lending platform backed by bank 2012 The number of online lending platform reached more than 200 in China 2013 The Year One of Internet Finance in China when online lending

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2016 The Development of P2P Online Lending in China

2014 Swarming tide of venture capital, online lending industry developed rapidly

2015 The Exposure Draft of government regulatory policy about online lending industry came out

2016 On the August 24

th_{, China’s Bank Regulatory Commission and other} three governmental branches formally published the regulatory document

Source: Yincan Consulting, WDZJ.com

According to statistics from Yincan Consulting and the WDZJ.com, as of the end of the August in 2016, the number of operational online lending platforms in China was 2,235 and the historical accumulative transaction volume exceeded USD 385.88 billion (RMB 2581.509 billion). From January to the end of August in 2016, the accumulative transaction volume reached USD 181.81 billion (RMB 1216.288 billion), almost 2.53 times the 2015 (from January to the end of August) figure which was USD 71.84 billion (RMB 480.591 billion). As of the end of the August, this year, the loan balance on the online lending platforms was USD 101.69 billion (RMB 680.332 billion), a 164% rise compared to the USD 38.53 billion (RMB 257.762 billion) of 2015(by the end of August). The comprehensive rate of return continued to drop, from 12.98% in the August of 2015 to 10.08% at the end of eighth month of 2016. In the August of 2016, the average term of loan was 8.04 months, and the numbers of active online lending industry lenders and borrowers were 3518,000 and 1353,100 respectively, with an increase of 1.04% and 17.26% correspondingly compared to that in the last month.

The Size and Distribution of Online Lending Platforms

There were about 2,235 online lending platforms in China as of the end of August in 2016. The number of platforms reduced 2.02%, compared to that in the last month. And a year ago, there were about 2,283 online lending platforms, which showed that the number of platforms experienced a year-on-year decrease for the first time. It is anticipated that the number of platforms will continue to decline after the regulatory rules come out.

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Data source: Yincan Consulting, WDZJ.com

Figure 1: The Number of online lending Platforms in China

Figure 2: Geographical Distribution of Online Lending Platforms in China

The platforms are mainly distributed in the coastal regions with relatively developed finance and IT industry. By the end of August in 2016, from the perspective of number of platforms, Guangdong, Beijing, Zhejiang, Shandong and Shanghai are among TOP 5 in order, with 404, 296, 277, 226 and

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The Transaction Volume and Loan Balance of Online Lending Industry

Up to the end of August in 2016, the historical accumulative transaction volume of the online lending industry in China exceeded USD 385.88 billion (RMB 2581.509 billion). From January to the end of August in 2016, the accumulative transaction volume reached USD 181.81 billion (RMB 1216.288 billion), almost 2.53 times the 2015 (from January to the end of August) figure of USD 71.84 billion (RMB 480.591 billion). It is expected that the transaction volume will reach USD 300 billion (RMB 2 trillion more or less) in 2016.

Figure 3: Transaction Volume of Online Lending Industry in China

It can be observed that, from January to the end of August, with regard to the transaction volume, Guangdong, Beijing and Shanghai were TOP 3 in order, with USD 50.72 billion, 48.64 billion and 33.27 billion respectively. The sum of the transaction volume of these three districts accounted for 72.95% of the whole country. So it is easy to find out that the market size of these three districts is definitely big.

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Figure 4: Geographical Distribution of Transaction Volume

As of the end of August in 2016, the overall loan balance went up to USD 101.69 billion (RMB 680.332 billion), performing a 164% year-on-year growth, which means the figure was USD 38.53 billion (RMB 257.762 billion) a year ago. It is predicted that the loan balance will touch USD 127.06 billion (RMB 850 billion) at the end of 2016.

Figure 5: Loan Balance of the Online Lending Industry in China

From the perspective of the distribution by province, the loan balance of Beijing ， Shanghai and Guangdong was USD 39.92 billion, 22.95 billion and 17.82 billion respectively. And the total

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the total size of loan balance in these three districts is significant and important.

Figure 6: Geographical Distribution of Loan Balance

Rate of Return and Loan Terms of Online Lending Industry

From January to the end of August in 2016, the comprehensive rate of return of online lending industry was 10.96%. It is predicted that the comprehensive rate will go down to 9.5% at the end of 2016. As the regulatory rules come out and the demands from the lenders continue to go up, many platforms will choose to lower the comprehensive rate of return down. But compared to the other investment channels in China, the returns of online lending still own strong attraction.

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Figure 7: Comprehensive Rate of Return of Online Lending Industry in China

In terms of the number of platforms, 43.99% platforms had the rate of return concentrating between 8% and 12%; 37.32% platforms had the rate of return concentrating between 12% and 18%; 8.47% of the total platforms focused on the rate of return above 18%.

Figure 8: Distribution of Rate of Return of Online Lending Platforms

From January to the end of August in 2016, the average term of loan in the online lending industry was 7.62 months. The short-term loan became the major type of loans and provided a good complement to the long-term loans issued by the traditional commercial banks.

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Figure 9: Average Loan Terms of Online Lending Platforms in China

From the view of distribution of the online lending platforms, over 82% platforms had the loan term within six months; 43.73% platforms had the loan term within 1-3 months; 32.85% platforms focused on the loan term between 3-6 months; 17.29%，relatively small, platforms had the loan term concentrating six months above.

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The Number of Borrowers and Lenders

In the August of 2016, there were as many as 3,518,000 lenders, a 1.04% rise compared with persons of last month, and 1,353,100 borrowers, a 17.26% rise compared to those of July.

Figure 11: The Number of Online Lending Platforms Borrowers and Lenders The Development Trends of Online Lending Industry in China

In China, the online lending industry has still been in the rapid growth situation, but all the platforms will face a lot of challenges. However, the online lending has been effectively increasing the total supply of loanable funds in the financial market, enhancing social welfare of the average citizens, and financing the historically underfinanced businesses.

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increases the liquidity all the time and tries to bring down the credit rate, but the top design takes a long time to come into effect, lax currency policy doesn’t work well and the micro and small

businesses can’t receive the sufficient credit loans from the traditional banks because of being short of enough assets for mortgage and lacking the past credit reports, valid financial reports and enough information disclosures. Accordingly, for the smaller enterprises, the difficult access to credit still exists. The gap between demand and supply of money expands and the underserved financial market will stay stubborn.

2. The competition for credit will be intensified and online lending will be the trend. More and more companies will struggle for the credit business. The development of credit is determined by the level of credit checking. In other words, the development situation of credit checking is the leading indicator and also the cornerstone of the credit business. In addition, when the technology of credit investigation improves more and more completely, pure online lending will be the trend.

3. Mobile channel will be the main access. In China, the mobile internet becomes the mainstream faster and faster. Without doubt, several years later, the number of users on the mobile internet will continue to increase further. From the view of lender’s capital in the online lending industry, the competition for the PC users intensifies seriously. In the future, the mobile channel will be the main access. The competition focusing on the mobile channel among the platforms is going to break out sooner or later.

In the future, online lending will be on the right track towards development with a solid foundation to gain the confidence and acceptance from the regulators. With the strong demand and supply for loanable funds, online lending can be expected to be more flourished with increasing transaction volumes. At the same time, the online lending industry will become more and more competitive, and the winners will likely be the fewer survivors that could eventually dominate the industry on their own. Chinese online lending will continue to make for significant progresses.