Chinese Internet finance players to experience growing pains under new rules

BEIJING - Chinese Internet finance players are having mixed feelings about a raft of new policies designed to regulate the rapidly growing sector.

Ten central government ministries and industry regulators, including the People's Bank of China (PBOC), the Ministry of Industry and Information Technology, the Ministry of Finance and China Securities Regulatory Commission rolled out guidelines to regulate market order and further clear regulatory responsibilities on Saturday.

Internet finance refers to loans, investments and other financial services provided through online channels rather than through banks and other financial institutions.

Though specific rules are still to be unveiled, many market players expect an end to the sector's previous unregulated wild growth through enhanced competition and a market reshuffle.

The Internet finance sector has seen rapid growth as financial institutions and companies rushed to roll out Internet-based wealth-management products to meet the demand of increasingly affluent Chinese looking for higher returns than bank deposits.

Peer-to-peer lending (P2P), or lending done without a traditional financial intermediary such as a bank, saw transaction volume almost double during the first six months with average annual returns of about 15 percent, according to data from www.wangdaizhijia.com, an online lending information and exchange platform.

The number of P2P companies nationwide rose from 1,627 in January to 2,028 in June. However, the number of non-performing P2P platforms rose from 59 in May to 125 in June, partly due to wild stock market volatility, underlining the risks of Internet financial products.

"The new policy labels P2P platforms as information intermediaries rather than credit intermediaries and orders Internet finance players to use qualified banks for capital deposits and management instead of currently prevailing third-party payment platforms, all of which will reshape the P2P market," said Ye Daqing, CEO of Rong 360.com, a search platform offering financial services.

"Small platforms with poor management are likely to be forced out of the market when detailed regulations come out, and this is just survival of the fittest," said Xu Jianwen, CEO of renrenmoney.com, an Internet Finance company.

The guidelines said support services and infrastructure for the industry should be improved. Market players are encouraged to build a credit information sharing platform. Qualified credit intermediary agents will be supported in rating the credit of online finance companies to enhance information transparency.

"Gone are the days when Internet finance platforms could grow unregulated, and we can expect more cooperation, such as through mergers and acquisitions, between traditional financial institutions and emerging Internet financial players," said Yi Huanhuan, secretary of IFC1000, an e-finance industry guild.

The guidelines insisted on a market-oriented mindset in developing Internet finance and aim to serve the real economy and maintain financial stability, while abiding by the central government's macro-control policies.

They urged protection of consumers' legitimate rights and information security. Regulations should be rolled out to deal with criminal activities related to Internet finance.

"The whole sector will experience some painful transformations when detailed regulations are rolled out, but this is a necessary step for the long-term sustainability and healthy growth of the market," Yi added.