Crisis of crediting between peers in China causes indignation

Protests erupt, as thousands in China lose their savings

The Chinese government faces anger with mom and pop investors after hundreds of online credit platforms exploded, destroying their savings.

The protest shines in the gloomy corner of the financial industry of China, that the authorities allowed to grow rapidly with little supervision. The double-digit returns promise attracted people looking for more lucrative places to invest their money than conventional banks.

But the recent persecution by the central government in Beijing has helped trigger a sharp increase in the number of congested platforms.

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The crisis affected people like the construction project manager in Beijing, who told CNN that he invested more than 275,000 yuan ($ 40,000) with a site that unexpectedly closed last month.

"The first reaction is distrust. I did not believe that the platform collapsed … But in the end, I had to admit the truth, "said the 28-year-old man, refusing to be identified because of fear of government retaliation, He said that the amount he lost included savings his parents, the money he borrowed from friends, and the money he planned to use to buy an apartment for him and his pregnant wife.

The demise of the platform in which he invested, Tourongjia.com, is now under police investigation. A government statement in July, published on its website, says that the chairman is absent, and 13 suspects were detained. He advises investors to report their losses to the police as soon as possible. The company's telephone lines no longer work.

protest in Beijing p2p
The collapse of peer-to-peer creditors in China caused public protests.

"Misconception and crime"

Sites such as Tourongjia, known as peer-to-peer lenders, were to provide an alternative source of credit for borrowers, such as small businesses, who struggled to obtain loans through China's banking system, which traditionally prefers state-owned companies and large or politically related firms.

Initially, the Chinese government encouraged the growth of the sector. But it "has become a magnet for distortion and crime that can be expected in such freely controlled off-market events," said Brock Silvers, managing director of investment consulting firm Kaiyuan Capital in Shanghai.

Now the Chinese government is trying to remove the industry with stricter rules, which is part of a wider risk limitation in the financial sector. According to Wangdaizhijia, the firm that controls this sector, the number of peer-to-peer lenders closed from 28 in May to 218 in July.

"Regulators have become more serious about trying to crack this because they realized that it is getting out of control," said Andrew Collier, managing director of Orient Capital's financial research company in Hong Kong.

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The construction project manager, who spoke with CNN, said he believes his investments are safe, because Tourongjia seems to have government approval.

Several reports in China's state media mention meetings of company executives and local government officials in the eastern city of Hangzhou, where Turondzha was based. Government officials toured their offices and even visited bizarre banquets.

The Hangzhou City Government did not respond to the request for comments.

china p2p policeman
The police canceled the planned protest in connection with the online credit crisis in Beijing on Monday.

"The law protects only a small group of people,

After the collapse of Turundžia, there is no sign of compensation for those who lost their money.

"In China, the law protects only a small group of people, not us, the masses," CNN told the construction project manager.

He and others who lost their money on similar sites are trying to get their claims to the national authorities, but with little success. Planned protest outside the office of financial regulators in Beijing on Monday was quickly turned off by the police.

"The government is not going to call for jail. I would be very surprised, "said Collier. He predicts that after the current turmoil, the industry eventually consolidates around large Internet players and banks.

The Central Bank of China did not respond to the request to comment on the losses of investors. Earlier, he said that he would fight with bad creditors and urged relevant government agencies to help improve "the wisdom of investors with respect to investments, loans and risks."

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Those who lost money say that they do not give up, despite the risk of prison or detention.

A 36-year-old health care seller who said he lost about RMB 1.4 million ($ 200,000) to Turonj, said CNN, he expects further protests.

"We need to fight for our rights," he said. "My life is ruined. Now I am a financial refugee. "

– Daniel Shane, Serenity Wang, Nanlin Fan, Yong Xiong and Stephen Jiang have contributed to this report.

CNNMoney (Beijing) First published August 8, 2018: 9:47 pm Eastern Time

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