Struggling Chinese P2P lender repay investor with white spirit

July 14, 2016 2 mins read
Struggling Chinese P2P lender repay investor with white spirit

While China’s state-owned banks plot debt-for-equity swaps to cut bad loans, one troubled P2P lender has make up a new “novel plan” to repaying its investors in baijiu, 10 and 17 billion litres of the grain-based liquor — sometimes dubbed “firewater” each year), the popular Chinese liquor.

Chinatou.com said that it was no longer able to return cash to investors following the arrest of its chairman. Instead, it pledged to pay them in baijiu produced by a connected company in order “to minimize the loss”. The company, which is based in eastern Anhui province, owed Rmb230M to 1,850 investors as of middle of May 2016.

P2P lenders — who take in cash from investors and lend it directly to other individuals or businesses — have been growing rapidly in China over the last couple of years. Total outstanding debt in the sector hit Rmb576bn at the end of May, according to Online Lending House, a Chinese website tracking the sector.

But the largely unregulated sector, part of the country’s bigger system of shadow banking, has been hit by an increasing number of scandals from badly run operations to full-on frauds, such as the multibillion-dollar Ponzi scheme at a company called Ezubao. Earlier 2016, China’s central bank launched a wide-ranging crackdown on fraud in the internet finance sector, spanning everything from peer-to-peer lending to equity crowdfunding and online insurance. The Chinese government, which has come under attack for its management of the currency and stock markets, is worried that financial scandals could threaten stability in the banking sector.

The chairman of Chinatou.com, was arrested after investors complained about him earlier this month, the Anhui province-based company said on its website. He is also the chairman of the Anhui Longshu Liquor Company, whose products were offered to Chinatou.com investors in place of cash. This P2P lender said on its website that it aspires to be the “pilot for the efficient use of private capital, the dreams of young entrepreneurs and the spring of China’s microfinance sector”.

A state-controlled media outlet warned that baijiu was a bad investment choice for investors because the value is difficult to assess and to sell.

Marlon Mai's picture
Marlon Mai
Managing Director, Greater China
mmai@morganmckinley.com