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The P2P lending economy of China was one of the biggest markets that happened to the economy as investment options diversified, and loans were made available for even those who couldn’t afford what the major banks were offering.

Can China’s P2P lending market bounce back?

The prospect of lending beyond the borders and strict constraints of banking regulations had the P2P market booming like never before, with over 3,383 platforms emerging in the landscape over the course of 10 years. Over time, the monthly transactions associated with these platforms blossomed to over 130 billion RMB, a sheer sign of the heights to which the P2P lending paradigm had reached.

Three core reasons were attributed to the meteoric rise of P2P lending in China during its golden years, namely the increasing financial demands of the Chinese SMEs, an overwhelming increase in available funds on the part of investors, and an improvement in the penetration rate of the Internet in the country.

However, the so called shadow banking assets declined last year, marking the first time that these riskier funds have shrunk in a decade. While this might have been something to celebrate three years ago, the ongoing effects of the US–China trade war and COVID-19 have slowed China’s economy. China needs to combat slowing growth and some are bemoaning the decline of shadow banking, arguing that it can bolster economic activity.