10 ms·

Beijing struggles to defuse anger over China's P2P lending crisis

104 points by lnguyen 8y ago

bayesian_horse 8y ago
A bank is a bank, even if it's not called a bank. This kind of wild west capitalism will eventually halt or at least stifle Chinese progress and growth, just because the risks of investments is too large.
- berbec 8y ago
  I don't think the risks aee two large it's that the people putting the money aren't properly informed/educated. If you want to lend to people who have a 50% default rate, feel free! Just make sure there is an actuary who can help you manage your risk. I doubt these p2p companies were helping people weigh risk.
ruang 8y ago
So it's the responsibility of smart investors to bail out dumb investors?
- deleted 8y ago
  [deleted]
- atr_gz 8y ago
  The government, including Li Keqiang, was officially promoting this industry a few years ago. The government also tightly controls the flow of information in China, keeping people from seeing alternate opinions. In addition to that, tight currency controls mean the middle class is starved for worthwhile investments. I don't know whether these people should be bailed out or not (the companies definitely shouldn't be), but I can see why they're upset with the government. It's not really the same situation as in the US.
  - ruang 8y ago
    Thanks, that context makes a lot more sense.
  - baybal2 8y ago
    >In addition to that, tight currency controls mean the middle class is starved for worthwhile investments. But that is kind also the only reason China is not completely sank in the saving glut. They want to make it appear to people that they have no better alternative to use their money than just spending it right away. This is one of reasons that a thing as bizarre as that bitcoin took off her. In reality, Chicoms have no effective way to stop capital bleed. The learned that the stronger signal they send that "tomorrow it will be harder to get your money out of the country," the more money actually leaves. All kinds of eCurrencies is one side of that, but insane loan schemes is another: the current most popular funds exfiltration scheme is following - a guy loans money to some fund in China, and in exchange gets an interest free or very low interest rate load abroad. The fund then finds more a legal front for "investing abroad" or just bangs money away inside China on pump and dump schemes. It is borderline tragicomic that whatever seemingly makes sense,and made in good faith policies made up by Chinese government end up acting with opposite effect: 1. The 50k USD limit on foreign remittance - actually aggravates capital flight, by sending the signal that domestic capital markets are so bad that government has to resort to such extreme measures. 2. Prohibition on private ownership of major assets (real estate, land, mining licenses, ownership of private business over the revenue limit, sea ad aircraft, and on) - was made to ease saving glut, by making people rent that stuff rather than own, but... you know: an average Chinese citizen save like crazy just to get the 50 year rent. 3. Salt tax - apparently is still being kept to force people buying Iodinised salt, but everybody knows where to buy salt around the state monopoly And on and on and on
    - bobthepanda 8y ago
      The problem is that China's economy is based on keeping the genie in the bottle. The moment they let it out, all hell will break loose, and it'll be 1998 all over again.
  - stephengillie 8y ago
21 8y ago
In the last 5 years retail Chinese investors had massive losses in bitcoin, gold, the local stock market, bitcoin again, now P2P. Is it fair to say that they rush from one investment fad to the next, typically buying the top? This is how it looks from far away, can someone with local knowledge comment? http://static.atimes.com/uploads/2015/07/retail-investors.jpg http://static.atimes.com/uploads/2015/07/retail-investors.jp...
- seanmcdirmid 8y ago
  They’ve done well on real estate. The government would never let the real estate sector crash, the bubble must be maintained at all costs, or at least the landing must be soft. Well, thats the hope anyways. I think that sector will crash eventually, but they’ve kept it going for so long.
  - tonyedgecombe 8y ago
    The more they artificially sustain that market the harder the crash will be. It will be painful but I still hope something like that would create democratic reforms.
    - vkou 8y ago
      The markets in the US, following 2008, were artificially sustained, too. How hard will they crash?
      - seanmcdirmid 8y ago
        The US was allowed a crash at least. As for how much we will pay for low interest rates later, I'm sure it will be something bad in the next crash. China has kept pumping up its bubble unreasonably so since the mid-2000s. It has a third-world problem compared to the USA's first-world one.
        vkou 8y ago
        This may be an unpopular opinion, but in a low-growth first world - which we are probably living in, now, interest rates have to be low.
vfulco2 8y ago
There is a huge structural issue when investors of all asset classes believe the central government will bail them out. It happens to a vastly lesser degree elsewhere. We saw the folly of it in the US in 2008.
- bilbo0s 8y ago
  I don't know if the structural issue was people believing the US government would bail them out. The issue was probably more that we actually bailed them out. I can't really blame rich and powerful bankers for thinking we were gonna do something that we normally do for them. Stop bailing them out, and they'll stop believing they're gonna be bailed out.
  - koboll 8y ago
    If we're in a position where the options are a bailout or the catastrophic collapse of the world economy, we've already failed. This is why regulation is necessary.
    - maxxxxx 8y ago
      "bailout or the catastrophic collapse of the world " In 2008 this is what the bankers told us but are these really the only options? I have my doubts.
      - SuoDuanDao 8y ago
        That must be what they told Washington at the time, and what's more Washington obviously bought it.
        maxxxxx 8y ago
        I still remember how all the people who made decisions or got hired in Washington during that time had an investment banking background, ideally Goldman Sachs. It was infuriating.
dmortin 8y ago
I wonder if the average Chinese is aware of these problems if not affected by them directly. If it is not reported in media and you don't know anyone who's affected then how would you know about this? And knowing about is this important, so you don't put your money in such an investment.
- yellowcherry 8y ago
  It's reported in the Chinese media almost daily right now.
  - pentae 8y ago
    Probably not the part about protestors having their doors kicked in and being rounded up and put into holding centers, I imagine. This is probably the most important thing people should know about.
    - lozenge 8y ago
      Chinese people know that protesting is illegal and that their government is oppressive. It largely doesn't matter to them because they don't want to protest. How they are investing their life savings is clearly the more important thing they should know about.
      - dmortin 8y ago
        There are many protests every day in China, so people do want to protest, but many people don't, because they are afraid of repercussions. If peaceful protests were allowed then much more people would go to the streets to protest.
everybodyknows 8y ago
For longer historical context, check out the inglorious record of prosper.com, here in the U.S.
tiatia123 8y ago
As mentioned before, we (Europeans) don't have to be afraid of China's strength but only of our own weakness. China has its' strengths but it comes with too many weaknesses. The constant cheating and screwing the other party over will work only to some extent. This is also a reason why I dislike Chinese stocks. The idea of "shareholder" value or "sharing your business profits with an anonymous investor" must sound totally absurd for most Chinese. In the end, what goes around will come around eventually. Do you know Alibaba by the way? https://brontecapital.blogspot.com/2015/09/job-interview-questions-size-and-scope.html https://brontecapital.blogspot.com/2015/09/job-interview-que... https://brontecapital.blogspot.com/2015/10/alibaba-yeah-right-jack.html https://brontecapital.blogspot.com/2015/10/alibaba-yeah-righ...
Animats 8y ago
It's striking how terrified the government of China is of protests.
bitxbit 8y ago
I really don't understand what the Chinese gov't expects when they are trying to control damn near everything. I honestly believe they are convinced they've successfully hacked capitalism.

104 points by lnguyen 8y ago

A bank is a bank, even if it's not called a bank. This kind of wild west capitalism will eventually halt or at least stifle Chinese progress and growth, just because the risks of investments is too large.

berbec 8y ago
I don't think the risks aee two large it's that the people putting the money aren't properly informed/educated. If you want to lend to people who have a 50% default rate, feel free! Just make sure there is an actuary who can help you manage your risk. I doubt these p2p companies were helping people weigh risk.

ruang 8y ago

So it's the responsibility of smart investors to bail out dumb investors?

deleted 8y ago
[deleted]
atr_gz 8y ago
The government, including Li Keqiang, was officially promoting this industry a few years ago. The government also tightly controls the flow of information in China, keeping people from seeing alternate opinions. In addition to that, tight currency controls mean the middle class is starved for worthwhile investments. I don't know whether these people should be bailed out or not (the companies definitely shouldn't be), but I can see why they're upset with the government. It's not really the same situation as in the US.
- ruang 8y ago
  Thanks, that context makes a lot more sense.
- baybal2 8y ago
  >In addition to that, tight currency controls mean the middle class is starved for worthwhile investments. But that is kind also the only reason China is not completely sank in the saving glut. They want to make it appear to people that they have no better alternative to use their money than just spending it right away. This is one of reasons that a thing as bizarre as that bitcoin took off her. In reality, Chicoms have no effective way to stop capital bleed. The learned that the stronger signal they send that "tomorrow it will be harder to get your money out of the country," the more money actually leaves. All kinds of eCurrencies is one side of that, but insane loan schemes is another: the current most popular funds exfiltration scheme is following - a guy loans money to some fund in China, and in exchange gets an interest free or very low interest rate load abroad. The fund then finds more a legal front for "investing abroad" or just bangs money away inside China on pump and dump schemes. It is borderline tragicomic that whatever seemingly makes sense,and made in good faith policies made up by Chinese government end up acting with opposite effect: 1. The 50k USD limit on foreign remittance - actually aggravates capital flight, by sending the signal that domestic capital markets are so bad that government has to resort to such extreme measures. 2. Prohibition on private ownership of major assets (real estate, land, mining licenses, ownership of private business over the revenue limit, sea ad aircraft, and on) - was made to ease saving glut, by making people rent that stuff rather than own, but... you know: an average Chinese citizen save like crazy just to get the 50 year rent. 3. Salt tax - apparently is still being kept to force people buying Iodinised salt, but everybody knows where to buy salt around the state monopoly And on and on and on
  - bobthepanda 8y ago
    The problem is that China's economy is based on keeping the genie in the bottle. The moment they let it out, all hell will break loose, and it'll be 1998 all over again.
- stephengillie 8y ago

21 8y ago

In the last 5 years retail Chinese investors had massive losses in bitcoin, gold, the local stock market, bitcoin again, now P2P. Is it fair to say that they rush from one investment fad to the next, typically buying the top? This is how it looks from far away, can someone with local knowledge comment? http://static.atimes.com/uploads/2015/07/retail-investors.jpg http://static.atimes.com/uploads/2015/07/retail-investors.jp...

seanmcdirmid 8y ago
They’ve done well on real estate. The government would never let the real estate sector crash, the bubble must be maintained at all costs, or at least the landing must be soft. Well, thats the hope anyways. I think that sector will crash eventually, but they’ve kept it going for so long.
- tonyedgecombe 8y ago
  The more they artificially sustain that market the harder the crash will be. It will be painful but I still hope something like that would create democratic reforms.
  - vkou 8y ago
    The markets in the US, following 2008, were artificially sustained, too. How hard will they crash?
    - seanmcdirmid 8y ago
      The US was allowed a crash at least. As for how much we will pay for low interest rates later, I'm sure it will be something bad in the next crash. China has kept pumping up its bubble unreasonably so since the mid-2000s. It has a third-world problem compared to the USA's first-world one.
      - vkou 8y ago
        This may be an unpopular opinion, but in a low-growth first world - which we are probably living in, now, interest rates have to be low.

vfulco2 8y ago

There is a huge structural issue when investors of all asset classes believe the central government will bail them out. It happens to a vastly lesser degree elsewhere. We saw the folly of it in the US in 2008.

bilbo0s 8y ago
I don't know if the structural issue was people believing the US government would bail them out. The issue was probably more that we actually bailed them out. I can't really blame rich and powerful bankers for thinking we were gonna do something that we normally do for them. Stop bailing them out, and they'll stop believing they're gonna be bailed out.
- koboll 8y ago
  If we're in a position where the options are a bailout or the catastrophic collapse of the world economy, we've already failed. This is why regulation is necessary.
  - maxxxxx 8y ago
    "bailout or the catastrophic collapse of the world " In 2008 this is what the bankers told us but are these really the only options? I have my doubts.
    - SuoDuanDao 8y ago
      That must be what they told Washington at the time, and what's more Washington obviously bought it.
      - maxxxxx 8y ago
        I still remember how all the people who made decisions or got hired in Washington during that time had an investment banking background, ideally Goldman Sachs. It was infuriating.

dmortin 8y ago

I wonder if the average Chinese is aware of these problems if not affected by them directly. If it is not reported in media and you don't know anyone who's affected then how would you know about this? And knowing about is this important, so you don't put your money in such an investment.

yellowcherry 8y ago
It's reported in the Chinese media almost daily right now.
- pentae 8y ago
  Probably not the part about protestors having their doors kicked in and being rounded up and put into holding centers, I imagine. This is probably the most important thing people should know about.
  - lozenge 8y ago
    Chinese people know that protesting is illegal and that their government is oppressive. It largely doesn't matter to them because they don't want to protest. How they are investing their life savings is clearly the more important thing they should know about.
    - dmortin 8y ago
      There are many protests every day in China, so people do want to protest, but many people don't, because they are afraid of repercussions. If peaceful protests were allowed then much more people would go to the streets to protest.

everybodyknows 8y ago

For longer historical context, check out the inglorious record of prosper.com, here in the U.S.

tiatia123 8y ago

As mentioned before, we (Europeans) don't have to be afraid of China's strength but only of our own weakness. China has its' strengths but it comes with too many weaknesses. The constant cheating and screwing the other party over will work only to some extent. This is also a reason why I dislike Chinese stocks. The idea of "shareholder" value or "sharing your business profits with an anonymous investor" must sound totally absurd for most Chinese. In the end, what goes around will come around eventually. Do you know Alibaba by the way? https://brontecapital.blogspot.com/2015/09/job-interview-questions-size-and-scope.html https://brontecapital.blogspot.com/2015/09/job-interview-que... https://brontecapital.blogspot.com/2015/10/alibaba-yeah-right-jack.html https://brontecapital.blogspot.com/2015/10/alibaba-yeah-righ...

Animats 8y ago

It's striking how terrified the government of China is of protests.

bitxbit 8y ago

I really don't understand what the Chinese gov't expects when they are trying to control damn near everything. I honestly believe they are convinced they've successfully hacked capitalism.