China, Europe and the Netherlands: Opportunity Is Knocking at Our Doors

freedom, openness, equality, sharing, mass appeal, 
democratization and decentralization. These very 
characteristics will certainly achieve more equality 
for all. At present, P
2
P is the financial market which 
best captures the mass appeal and democratization 
of finance. It ensures that individuals with good 
credit ratings are able to obtain lower rates of inter-
est, and that the man on the street can issue loans 
in the same way as specialist financial institutions, 
and fully exercise his own financial rights.
   Thirdly, it promotes the financial marketization 
process, and accelerates financial disintermediation. 
P
2
P can effectively lower the social cost of capital in a 
way which is more conducive to economic develop-
ment. In the short term, P
2
P actually remains an ‘old 
wine in new bottles’ credit intermediation business, 
but against the background of Chinese financial regu-
lation, this initial form of P
2
P has injected new life into 
China’s traditional private lending, making up for the 
long-standing lack of small and micro loans and high-
yield bonds in Chinese financing. Furthermore, it not 
only encourages traditional financial institution mo-
nopolies to become more competitive promoting the 
marketization of interest rates, but is also a major step 
forward in forcing the bottom-up regulatory reform 
and reducing regulation over the finance sector.
The scale of P
2
P remains small for the time be-
ing, but it is growing at a rapid rate. This can be at-
tributed to three major factors: the first is the major 
leaps forward achieved in information technology, 
mobile Internet and third party payment technol-
ogies; the second is the liberalization of financial 
regulation – the lack of any specific regulatory 
requirements for P
2
P and lucrative returns have 
driven the setup of large numbers of P
2
P platforms; 
and thirdly, segmented market demand—the major 
demand for private lending and other small and 
microloans or high-yield bonds is directly reflected 
in the growth in P
2
P loan amounts.
The lack of a comprehensive credit system 
is the core hindrance to the development of 
P2P
Basic data and external regulation are precondi-
tions for the healthy development of P
2
P network 
lending. Chinese P
2
P is currently still in the wil-
derness stage of development, and is very much 
a mixed bag; its path littered with runaways and 
bankruptcies. As a result, the public has voiced a 
variety of doubts. This situation has been caused by  
a lack of regulation and low barriers to entry, and 
additionally China’s lack of a comprehensive credit 
system, which means that P
2
P platforms lack large 
amounts of basic data, thereby hampering credit 
assessments, loan pricing and risk management for 
Internet lending.
   Due to insufficiency in basic data and the 
intensity of competition, guarantees have to be 
provided for P
2
P during its initial phase, and ma-
jor amounts of offline due diligence legwork are 
required, resulting in higher operational costs. 
Under such conditions, a number of P2P websites 
have been forced to take out principal protection, 
allocate risk reserves, hire professional lenders, or 
apply creditor’s rights transfers, link with assets 
management capital pools or other measures. A 
certain amount of regulatory violation is unavoida-
ble, and short-term liquidity problems due to moral 
risk and the risk of default have prompted owners 
of some P2P platforms to run away.
However, these issues will improve with the 
accumulation of data. Not only is China’s social 
credit system gradually improving, but P2P itself 
is also continuously accumulating data. Once the 
P2P mechanism has repeated itself sufficiently, the 
development of P2P data accumulation will form 
a positive feedback mechanism. Massive data will 
support P2P platforms in their quest to more accu-
Finance 
052 
  Apr. 2015
China’s P2P industry has been a mixed bag in recent times, its path littered with runaways and 
bankruptcies, leading to the public at large voicing a variety of doubts. A precondition for the 
healthy development of P2P network lending is basic data and external regulation. P2P regulation 
should always be based on information regulation on the basis of data. An information disclosure 
principle similar to direct financing should be adopted, focused on full disclosure of information. 
This should include: shareholder information, transaction procedures, management structures and 
backups of transaction records.
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often occurs on the margins, the most obvious ex-
ample being the impact of electronic commerce on 
the retail, auction and other traditional industries. 
When the Internet first began to penetrate tradi-
tional industries, it seemed only to have a marginal 
effect; however, it then slowly occupied the entire 
sales channel, thus forcing traditional structures to 
reform. It is therefore worth emphasizing that im-
agination is required when dealing with Internet fi-
nance. In terms of financial systems, the ideal mar-
ket should be equal, free, convenient, effective and 
it should greatly reduce information asymmetries 
and transaction costs. The operating modes of In-
ternet finance, P2P in particular, are best suited to 
this development trend.
The development of P2P is dependent on the 
rate at which information technologies develop. In 
the future, depending on the speed of development 
of technologies such as mobile Internet, third party 
payment, information gathering and processing 
technologies, and artificial intelligence, Internet 
finance will register rapid growth from an initially 
low base level.
Future P2P growth will not be limited to the “P”s, 
either: trading products will also register abundant 
expansion. P2P is no mere small loan market, but 
derivatives business similar to network loans, will, 
in the future gradually expand in the P2P market, 
spinning off numerous financial services similar 
to P2P—such as P2P-based non-standard assets, 
transactions between individuals and crowd loans 
business. By this time, the market will more closely 
resemble a fully efficient market, and the credit al-
location function of P2P will be ever more effective. 
This will mean funds will be allocated in a more 
targeted manner, adherents will receive their loans, 
the segments of the finance market will be finely 
tuned, and the allocation of financial resources will 
be ultimately optimized in order to provide effec-
tive support to the real economy.
rately control risk and ensure the normality of their 
operations, and thus reduce bad loan levels and 
operating costs, eliminate the need to provide guar-
antees and ensure that they become fully-fledged 
information intermediaries.
Full disclosure of information is the key to 
P2P regulation
P2P regulation should always be information 
regulation based on data. Currently, the Chinese 
regulatory theory is totally focused on the setup of 
banks, insurance companies and other traditional 
institutional structures.
As information intermediaries, P2P regulation 
should adopt an information disclosure principle 
similar to that of direct financing, focused on full 
disclosure of information, including shareholder 
information, transaction procedures, management 
structures and backups of transaction records. Use 
can be made of modern information technologies, 
especially powerful search engines.
Specific regulatory tasks need not necessarily be 
handled by regulatory bodies, as certain regulatory 
tasks can be outsourced to specialist IT companies. 
More importantly, regulatory bodies must oversee 
the formulation and improvement of supervisory 
rules, perform audits of the regulatory implementa-
tion bodies, punish violations by the relevant prac-
titioners, reduce the occurrence of risk incidents 
and minimize the spread and range of risk.
P2P will alter traditional financing models
At the moment, China’s P2P system is similar to 
an Internet-based small- and micro-loans system, 
and it merely serves to supplement the country’s 
financial market – it is still far from being a mover 
and shaker in the nation’s traditional financial sys-
tem. However, as Kevin Kelly indicated, innovation 
Apr. 2015 
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WWW.BOAOREVIEW.COM
Xie Ping
Executive Vice President, China 
Investment Corporation; Moderator 
of 
Internet Finance Report 2015
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