Why did the Peer-to-peer Lending Market Fail in China?

HKUST IEMS Thought Leadership Brief No. 61


Sunny Yangguang Huang

  • From 2007 to 2020, China's Peer-to-peer lending market experienced a drastic boom and bust and ended up with zero surviving platforms.
  • The key reason for the collapse of China's P2P sector was that almost all P2P platforms deviate from the role of information intermediary and became shadow banks offering principal guarantee.
  • As the number of P2P platforms increases, each platform has a greater incentive to offer principal guarantee in response to fierce competition and the lure of financial fraud under limited regulatory capacity. This hurts the investors’ and social welfare.
  • The existence of naïve investors makes offering principal guarantee more attractive to platforms. Promoting information disclosure may not solve the problem.

Academic Seminar

This Thought Leadership Brief was presented in an Academic Seminar held by HKUST IEMS. Find out more >>

The presentation slides are available here (updated on 3 December 2021). 

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About the Author

Yangguang (Sunny) Huang is Assistant Professor of Economics at the Hong Kong University of Science and Technology. He is also a research affiliate at the Center for Economic Policy and faculty associate of the Division of Public Policy and Institute of Emerging Market Studies at HKUST. Sunny received his Ph.D. in Economics from the University of Washington, Seattle. His research areas are Industrial Organization and Applied Microeconomics. The theme of his research is combining economic models and econometric techniques to study policy-oriented topics. His research projects tackle problems in auction, procurement, corruption, financial development, digital economy, online markets, and innovation policy. More >> 

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