Uncover the Cause Behind the Collapse Clustering of Chinese Online P2P Lending Platforms

Abstract

Online peer-to-peer (P2P) lending platform is a sort of financial intermediary, where some individuals post requests of borrowing money online and others lend money thus getting rewarded from interest rate. In other words, it is a novel method to issue credit loans. In the foreign countries, the online P2P lending industry has developed into a mature stage. In China, however, it has gone through a rough road. Since the first online P2P lending platform was founded in the UK, thousands of platforms has been born and perished in China. In the past few years, as the industry got more and more prosperous, some platforms made use of lenders’ money as a form of illegal crowd funding. As a result, systemic risk accumulated and finally erupted. In the second half of 2015 and the first half of 2016, a great amount of platforms claimed their incompetence to repay lenders’ money and they closed down at the almost same time. To uncover the truth behind this phenomenon, some studies unmask that the nature of Chinese online P2P lending platforms is the component of the shadow banking system, which has brought huge pressure of compensation to the industry, leading lots of platforms to collapse. Apart from the risk caused by illegal behavior as components of the shadow banking, Chinese online P2P lending platforms undertake risk by off-site funding of stock market. This research aims to solve two questions: Is the collapse clustering attributed to the mismatch of different claims and off-site funding service in Chinese stock market? To what extent is the systemic risk of Chinese online P2P lending industry influenced by these two behaviors?