China Focus: China's P2P lenders dance with bull stock market

Wang Shi's stock portfolio has earned him 150,000 yuan (24,200 U.S. dollars) in just one month. His earnings soared thanks to a loan of 550,000 yuan from a peer-to-peer (P2P) lending platform to increase his investments.

While bullish about the market, the IT engineer from Shanghai plans to borrow more through the margin financing.

"Our generation has missed the super housing rally and we can't miss the super stock rally," said Wang, 25.

He estimates the country's benchmark stock index will reach 10,000 points in the next two years, more than double its current 4,657.60 points. He has invested heavily in shares on the ChiNext board, the Nasdaq-like board has gained about 150 percent since the beginning of the year.

China's benchmark Shanghai Composite Index closed at a seven-year-high of 4,657.6 points on Friday, gaining 44 percent this year as policy makers unleash more liquidity into the market to spur economic growth.

Optimistic investors, like Wang, are a new source of business for the country's P2P firms, as many P2P lending investors are withdrawing from the platforms to invest in the stock market, attracted by the potential for higher returns.

The country's P2P lending industry has seen robust growth over the past few years as investors are attracted by promised higher earnings. However, this year, P2P lenders have seen slowing growth momentum due to factors like declining yield rates and strong stock market performance.

Wu Jingmiao, an analyst with Yinhang.com, said the average annual yield rate of the P2P lending industry has fallen sharply to 14 percent this year and it is still in a downward trend.

Since late November, the central bank has lowered the interest rates three times, which has affected the yield rates of P2P lending platforms.

According to statistics from Rong360.com, a financial information provider, transactions on the country's P2P platforms reached 34.8 billion yuan in April, down 2 percent month on month.

Wang Qian, an analyst with Rong360.com, said many P2P investors were also investors and against the backdrop of a super stock rally, P2P investment is losing its appeal.

Executives of several P2P platforms said industry expansion is slowing this year and more investors are withdrawing money from the platforms.

Wang Kun, founder of Duanrong.com, said the P2P platform received only half of its forecasted deposits in April. However, as the stock market became volatile this month, there were signs of industry recovery, Wang said.

Lu Yuquan, founder of Gongming Tech, an online exchange for Internet finance products, said the bull stock market had a big impact on the P2P industry and many platforms reported sluggish growth this year.

If the stock market continues to rally, some P2P platforms might be forced to close, said Lu. For those who survive, they might embrace another golden growth period when the market is more bearish, he said.

Many P2P platforms, however, have tapped into growth opportunity in the stock market and are starting to offer margin financing to investors, a new business.

Statistics from Yingcan Investment Management and Counselling Co.,show over 20 P2P platforms now offered margin financing and trading value hit 2 billion yuan in April, up 15 percent from the previous month.

Liu Yanfeng, founder of P2P platform Anxindeli, said the bull stock market affected its total deposits, but it also nurtured the new margin financing business.

The high leverage, however, could put both investors and platforms at risk, warned analysts.

The failure of mandatory liquidation under the margin system when shares plunge could mean debt defaults and liquidation could trigger disputes, Wang said. Endi