China’s online lending companies are having tough times because of the further slowdowns of economic development, tighter regulatory measures, and the heating of competition. The online lending sector in China is hot, and the industry, in general, is battered. The primary concern is that they usually raise the capital from the rich investors and invest it in smaller companies. This scheme of work may be beneficial in times of economic prosperity but, for the most part, these online financing firms go bankrupt because they do not have proper risk assessment and control mechanisms and are not adaptable to new economic realities. Moreover, some of them are grey and involved in the schemes of financial fraud. Online lenders started operating some half decade ago, and their quantity grew spectacularly from some 880 in 2014 to 2,595 at the end of 2015. Such increase is challenging as most companies collapse leaving their investors short of the invested funds. It leads not only to shake-ups in the industry but also to the necessity to tighten regulations.
There are many people who are interested in investments into the Chinese economy, and online firms have become one of the easiest ways to do it. There are numerous reasons for China’s investment attractiveness, but the instances of online lenders collapsing and the cases they turned out to be grey, not credible, decreases the level of China’s investment potential. If the country is interested in preserving its leading positions in capital raising, then the government should conduct tighter policies of regulating the online lending industry. What is more, it would help solve the problem of capital outflows because if people know that only credible online lending companies are operating, they will not be afraid of losing their money and will invest into the Chinese economy.