China’s self-styled “Warren Buffett” and billionaire businessman Guo Guangchang on Wednesday called the country’s Rmb440bn ($65.9bn) peer-to-peer lending market “basically a scam”, becoming the latest high-profile executive to attack an industry that has been plagued by scandal.
The comment from Mr Guo, chairman of Fosun Group, China’s biggest privately owned conglomerate, has added to the fierce debate over China’s P2P lending market and comes just days after the government imposed new rules on the size of such operations.
The industry, which has grown rapidly over the past four years, is based on a business model in which individual lenders are matched with borrowers via online platforms. The loans often pay out high yields.
The sector has been lauded for providing an alternative to low-interest deposits but has more recently gained a reputation for hosting some of the biggest scams involving retail investor cash in China’s recent financial history, incurring the wrath of some of the country’s top business people as well as the regulators.
Mr Guo made the remarks at a press conference in Hong Kong following the release of the company’s interim results. Another Fosun executive emphasised that the company, known for using insurance premiums to make investments abroad, had never dabbled in the P2P business.
Earlier this month, the president of Ping An Insurance, China’s second-largest insurer, told the Financial Times that most P2P lenders were “fakes” and that the vast majority of China’s P2P lenders would not be able to continue their business in the future.
The president of Ant Financial Services, a subsidiary of Alibaba that houses the group’s payments and credit scoring platforms, has also tried to distance the company from China’s broader P2P lending market.
That large financial companies would lambast P2P lending comes as no surprise.
Within the past year, ordinary Chinese people have fallen victim to scandals in which online financial platforms have disappeared with billions of dollars, provoking angry protests on the streets.
In February, more than 20 people were arrested for their involvement in Ezubao, a “complete Ponzi scheme”, that allegedly took more than Rmb50bn ($7.6bn) from investors, China’s biggest case of financial fraud to date. A month later, a court in southern China jailed 24 people for defrauding about 230,000 investors of nearly Rmb10bn in a similar scam.
In response to such problems, the regulator last week issued rules forbidding online lenders from accepting deposits or guaranteeing principal or interest on loans they facilitate. It also capped borrowing at Rmb1m for individuals and Rmb5m for companies.
Mr Guo has been no stranger to controversy himself. The Fosun chairman disappeared for several days in December, only to re-emerge claiming he had been assisting an investigation in China. The group subsequently walked away from a deal to buy an Israeli insurance company.
Fosun is known for its leisure and entertainment holdings such as France’s Club Med and a stake in Canada’s Cirque du Soleil. During the past two months alone, it has acquired Gland Pharma in India, UK football club Wolverhampton Wanderers and Brazilian fund manager Rio Bravo Investimentos, and taken a stake in Portuguese lender Banco Comercial Português.