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P2P solution to China Inc's unpaid bills?
China CITIC Bank, a unit of the country’s biggest investment group, uncovered a Rmb1 billion ($152 million) fraud last year in its bill financing business. Apparently an employee at its Lanzhou branch falsified documents that were used as collateral to get a banker’s acceptance note.
But, more serious for corporate China is failing to get paid after presenting genuine bills. The internet could be a solution.
Troubled companies in China are turning to the under-regulated internet finance industry to ease their cash flow problems, using peer-to-peer (P2P) exchange platforms that match unpaid bills with debt collection agencies at a big discount for the vendors, reports the Financial Times (paywall).
The rapid rise of P2P lending in China comes as debts are mounting in its traditional banking system — overall debt is 230% of gross domestic product.
Privately owned P2P platform Baozhi360 has more than Rmb99 billion ($15bn) in bad loans and rival Zichan360 has taken over more than 59,000 distressed loans worth nearly Rmb1.5 billion since August, according to its website. Many of the loans listed on these platforms include unpaid debts for goods or services.
Of course, there is always a risk. P2P lending falls under the commerce ministry, putting regulation of the collection agencies and the tactics they use to recover loans in a grey area. Maybe not such a panacea after all.
Photo: James Mchale