A potential protester prowled the streets around the Westin Hotel in Beijing’s financial district until 3 a.m., not returning until police had completed their search. Another, Alex Li, carpooled part of the way from northern Harbin province to avoid police surveillance on public transport.

Both were among thousands of middle-class Chinese from across the country trying to get past China’s high-tech surveillance to protest in Beijing’s financial district on Monday, August 6. It was the latest outbreak of resentment among Chinese aspiring to live a better life and being thwarted.

In recent years, many members of the Chinese middle class have invested their savings in peer-to-peer lending platforms, called P2P for short, attracted by promises of high returns. But as part of a larger effort to reduce financial risks to the Chinese economy, financial regulators have tightened the rules for these platforms, leading many to collapse without returning investors’ money. . In Li’s case, the main stakeholders in Yonglibao, in which he had put his money, suddenly disappeared in mid-July (link in Chinese), he told the South China Morning Post. By the time its founders abandoned their offices, the platform had accumulated a transaction volume of 7.6 billion yuan ($ 1.1 billion). The other protester told Quartz he lost the equivalent of $ 50,000 on a platform called iqianjin.com – his name is Love Money, although it can also be understood as “Get Ahead” or “Money Coming”.

Both hoped that a protest in Beijing would force the government to help people get their money back from the dozens of P2P platforms that stopped allowing cash withdrawals last month. Instead, they were foiled by hundreds of uniformed policemen who Locked the area, patrolling the corners near the offices of the central bank and securities regulators, and checking ID cards. More than 120 buses were brought into the area to take away the stealthy protesters, according to an AFP journalist.

“P2P has finally gone from” peer-to-peer “to” police to persons “,” wrote a Twitter commentator.

Quick money guaranteed by the government?

The platforms may now look like scams, but they were once touted as innovative financial tools by senior Chinese officials and big tech companies. Convinced, many people, including single mothers and young trying to raise the money to buy an apartment, poured their money into it.

In 2015, Chinese Premier Li Keqiang and former Chinese central bank governor Zhou Xiaochuan both publicly approved (link in Chinese) P2P as a means of developing Internet financing and supporting small and medium-sized enterprises. Compared to the traditional banking system, P2P has a lower investment threshold for savers, while providing borrowers with no credit history the opportunity to raise funds more easily. Public support for the sector, coupled with word of mouth, has attracted millions of small lenders and helped make China the world’s largest P2P lending market, with 1.2 trillion yuan ($ 175 billion ) outstanding loans. from 2017 (paying).

It was the year that two major players in the sector went public, including one of the oldest, PPDai, founded in 2007.

The number of P2P companies rose from 10 in 2010 to more than 3,000 in 2015, according to a June research report of DBS Bank, based in Singapore. But as more players entered the market, some have started to promise much higher interest rates than their competitors. Compared to an interest rate of less than 2% in Chinese banks, many P2P platforms promised a 10% return (link in Chinese). They have also started to promise investors better returns if they get more people in their network to invest in P2P platforms.

“You should be wondering when the rate is over 6%… be prepared to lose all deposits if it is over 10%. “

A P2P platform has gone so far as to promise profits from up to 60% (link in Chinese) before the founder’s escape and the platform failed to repay (link in Chinese) over 200 million yuan ($ 29 billion) in June. That month, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, issued a blunt warning (paywall): “You should ask yourself the question when the rate is higher than 6%, [a rate above] 8% is a dangerous signal, and you can be prepared to lose all deposits if it is more than 10%.

The truth is, it was a risky loan – according to the DBS report, the typical P2P borrower is likely to be between the ages of 20 and 39, earning between $ 300 and $ 1,200 per month, and with little money. credit history. The lack of transparency about how the platforms were using the pooled money for loans made it difficult for investors to judge what was going on – and the controlled nature of the Chinese internet may have also played a role. role.

“Because of the Great Firewall, there is just less information – it’s not just a judgment, it’s a fact.”

“The average Chinese citizen operates without complete information and that fuels a lot of what we consider to be very risky behavior,” said Jehan Chu, founder of Kenetic Capital, a Hong-based cryptocurrency investment and advisory firm. Kong, who closely follows China’s financial situation. frame. “Because of the Great Firewall, there is just less information – it’s not a judgment, it’s a fact.”

Caught in cleaning up China’s risk

Zhang Xue, a 47-year-old single mother who invested in P2P platforms with the money her husband left after he died of a heart attack, told a national news site (link in Chinese) that she had lost all of her savings of 3.8 million yuan ($ 550,000). “In over 40 years, I have never regretted and blamed myself like today. I feel that by coveting high interest rates, I have pushed my child into a bind, ”said Zhang, who can no longer afford her child’s school fees.

“In over 40 years, I have never regretted and blamed myself like I do today.”

She is one of 400 victims of the collapse of Touzhijia, a P2P platform that went bankrupt last month with 26 million yuan ($ 3 million) (link in Chinese) in debts. Touzhijia is one of the 221 P2P platforms (link in Chinese) which closed in July, up from 217 such cases in 2017, according to industry monitoring service site Wangdaizhijia (Online Lending House).

The rise comes after China began tightening rules for peer-to-peer lenders in August 2016 as part of a global effort to reduce systemic financial risk and speculation, and to regulate shadow banking. These efforts have included reducing the flow of capital from overseas Chinese business groups to irrational investments, banning cryptocurrency trading and coin offerings, and trying to reduce corporate debt. ‘ineffective public organizations. Stricter regulation has also been a response to previous cases of investor fraud, for example the case of Ezubao, a P2P site that was shut down by authorities in early 2016. The tightening is not yet over.

“The Chinese government has launched a slew of new financial regulations since July and will likely release more (including new regulations for the P2P lending industry) in the coming weeks,” Yuanxin Liao, Shanghai-based associate analyst at Control Risks consulting firm. Quartz said via email. “The concerns of the protesters, as well as the many investors exposed to the same risks, are most likely a key consideration in drafting the policy. “

To pass a Beijing-initiated exam, companies had to show they had appointed a custodian bank to oversee the funds, and that they made full disclosures about the use of funds, among other things. The deadline to take the exam it was in june of this year, with more and more businesses closing as the deadline approaches. As word of the closings spread, panicked investors began to withdraw their deposits, setting off a vicious cycle. For example, when the Qian88.com lending platform suspended its service in July, a flood of citizens flocked to (paywall) the company’s Shenzhen office to withdraw their money, and the police had to be called in to maintain order, according to Bloomberg. Several platforms, including Touzhijia (link in Chinese), are the subject of a police investigation. The DBS report said the upheaval could see the number of P2P platforms grow from around 1,800 currently to 300.

“The P2P online lending platform originated in Europe and America, why is it only in China that so many of them go wrong? “

In desperation, people from all parts of China began to surreptitiously organize to travel to Beijing. Protesters in China take huge risks, such as detention and constant scrutiny in the future, even if they fail to hold their protest. WeChat and other investor-formed chat app groups have been identified and blocked, and participants have not been allowed to purchase plane and train tickets. Still, accounts from several news reports and social media suggest that thousands of people may have made it to Beijing.

Ahead of the planned demonstration, a Twitter account whose name means “Financial Refugee” posted a letter (pdf, link in Chinese) on behalf of troubled investors, saying the protest was their only recourse after their complaints went unanswered by authorities.

“We can’t help but ask, P2P online lending platform originated in Europe and America, why is it only in China that so many of them go wrong? Said the letter. “Ironically, a policy backed by official guidelines has resulted in financial turmoil for tens of millions of families. “