Yet another Chinese P2P lending firm under investigation

Photo credit: Mike Poresky.

Another one bites the dust? Chinese P2P lending firm eSuDai has officially confirmed that on Friday, its offices were raided by local finance authorities, and that both staff and employees have been being interviewed by police, although it called the investigation “routine.” The company’s website was also down, although as of this writing it seems to be up again.

In its posts on Weibo and WeChat, eSuDai said that it will give a formal public statement as soon as the investigation has concluded.

eSuDai is one of China’s older P2P lending sites, having been founded in 2010. Over the company’s lifetime, it claims to have handled a total transaction volume in excess of US$1 billion, and in recent days its average daily transaction totals have averaged above US$1 million.

Photo credit: Sina Tech.

What’s happening to eSuDai isn’t yet clear, but it certainly doesn’t look good. China’s P2P lending industry has been beset with legal issues since major P2P lending site Ezubao was discovered to be a Ponzi scheme earlier this year. Since then, the industry has seen banks withdraw support, additional reports of fraud emerge, and an overall shrinking trend. Landlords are even backing away from renting office space to P2P firms.

New normal?

It’s not clear, however, whether the raid on eSuDai was prompted by some reports of fraud on the company’s part, or whether this is going to be part of the routine for P2P lending firms going forward. China’s government has resolved to tighten oversight of the sector, and on Friday Reuters reported that a plan to regulate the sector more closely has already been approved.

The new rules will forbid P2P firms from holding clients’ money in-house, instead requiring it to be deposited with third-party banks. They will also require new kinds of registrations and permitting, restrict advertising, and require firms to assess clients’ risk profiles, among other things.

It’s unlikely that the raid on eSuDai is a direct result of these changes, which have yet to be implemented, but it could still be a reflection of the broader trend of government suspicion of the sector and law enforcement’s desire for more oversight. Or it could be that the company really is involved in some kind of illicit behavior. We won’t know for sure until authorities release the results of their investigation.

But either way, the high-profile raid is yet another PR blow for China’s besieged online lending industry.