A large Chinese online lending platform accused of illegal operations has suspended operations, one of hundreds that have been shut this year by the government, as China cleans up a sector ridden with stories of Ponzi schemes.
Police in Huizhou, Guangdong province, said on Wednesday night that it had detained 13 executives from Guangdong Huirong Investment Co’s peer-to-peer lending platform esudai (www.esudai.com). The detainees included its legal representative and chairman Jian Huixing.
China’s government approved a plan, following a mid-April meeting, to clean up the country’s online financial sector, according to people with direct knowledge of the matter, including rules to limit the activities of P2P lending firms.
The plan outlines stricter rules for peer-to-peer (P2P) platforms, where lending quadrupled last year to 440 billion yuan ($67 billion), according to Citigroup research, forbidding them from holding clients’ capital in-house.
Esudai, which roughly translates to “quick loans”, is accused by the local police of illegally collecting deposits, while executives are accused of taking hundreds of millions of yuan in investor money for their own use.
Esudai has raised over 7 billion yuan from 330,000 investors since it was founded in 2010, according to its website.
Huizhou government officials visited Esudai’s offices on May 20 for inspections, the company said on its website, adding that it is cooperating in the investigation and has operated legally and transparently for six years.
It said customer deposits and withdrawals have been suspended.
The Esudai website was accessible on Thursday morning, but Reuters was unable to reach the company by phone.
A top executive at a Shanghai investment firm, Zhongjin Capital Management, or Wealthroll, last week confessed on state television to operating a Ponzi scheme.
Police accused Zhongjin last month of “illegal fundraising” – a loosely defined term applied to irregular behavior in China’s energetic but opaque shadow-banking sector.
Some people in the industry say the heightened scrutiny will eventually weed out bad players, giving the stronger companies opportunity for growth.
“Good platforms welcome government regulation for a simple reason: without good rules, bad players push out good players,” Wang Zhijian, CEO of FuYin, a Shanghai-based P2P platform, said at a financial forum last week, adding a lack of regulation forced all platforms into unfair competition.
A customer of Dianrong.com, one of China’s most high profile P2P players that has raised over $200 million from investors including Standard chartered Private Equity and Tiger Global, said the recent crackdown and scandals do not deter him from putting money into the site.
“The government does not want to kill the sector,” he said.
(Reporting by Elias Glenn; Editing by Ryan Woo)
First appeared at Reuters