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China’s P2P crisis – financial innovation backfires

Kam Wei NG

Once touted as a way to transform China’s financial sector to allocate capital more efficiently by market forces, China’s online peer-to-peer (P2P) lending platform has collapsed. The number of new P2P failures has surged again since June 2018 after an initial wave of failures in 2015-16 (Chart 1), sending the outstanding amount of P2P loans plunging (Chart 2). These platforms emerged in late 2006 by connecting individuals looking to borrow money with those willing to lend directly to these borrowers without going through the traditional financial intermediaries…

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