HONG KONG (Reuters Breakingviews) - Dianrong’s boss has daringly said what many are probably thinking. Guo Yuhang, co-founder and co-chairman of one of China’s biggest peer-to-peer lenders, blamed the government for his company’s sluggishness. Such regulatory grievances are common from bankers elsewhere, but rare in China. The complaints will strike a chord in the industry even if they don’t alter the course of mercurial rules.
In an internal memo seen by Reuters, Guo argued that Dianrong’s business was struggling because “we were told not to grow”. He pointed to fast-changing and fragmented rules, adding that he hoped Beijing would provide the industry with “a clear, and definite timetable, and give guidance and a ray of hope for companies that stick to compliance.”
The likes of JPMorgan boss Jamie Dimon routinely balk about policies they perceive to be overly restrictive. Corporate bully pulpits can be an effective part of a broader strategy to persuade politicians to revisit the issues. It is uncommon in China, however, where the state’s ownership of large banks, the need for official approvals and large swathes of legal grey areas all call for a quieter form of lobbying.
China’s peer-to-peer lending, a financial Wild West, has been enduring a harsh crackdown. After the practice reached its zenith around late 2015, a major scandal and a series of decrees have led to a radical shakeout. As Guo noted, however, officials have frequently changed course – such as by issuing and then extending deadlines – as they seek to contain the industry without triggering a meltdown.
The upshot is a controlled decline, even for big companies that might have been expected to benefit from attrition and consolidation. Only about 1,050 peer-to-peer lending platforms were operating as normal at the end of February, down from over 2,000 about a year ago, according to Chinese data-tracking site wdjz.com. Only two years ago, Dianrong predicted it would benefit from tighter rules, but is now closing most of its brick-and-mortar stores and expects around 2,000 layoffs, Reuters reported earlier this month.
The whole industry, with an estimated $220 billion of loans outstanding last year, has been trying to cope with the blur of regulations amid shifting political winds, as well as tools such as informal instructions euphemistically known as “window guidance”. Even so, it is unlikely Beijing will be receptive to Guo’s beefs, but they will resonate peer to peer.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.