Domestic ratings agency warns of P2P bubble

Dagong Credit Data Co Ltd warned on Wednesday that a bubble within the Internet finance industry is forming, with more than 60 percent peer-to-peer lenders unable to sustain healthy operations.

Some P2P platforms turn to refinancing to bankroll their operations and have serious capital mismatch or debt repayment problem, said the domestic credit rating agency.

The Beijing-based rating agency unveiled a blacklist with 266 platforms that it said had engaged in "serious violations of laws and regulations". Another 676 companies were on an early warning list, according to Dagong, which examined nearly 1,400 lenders in the industry.

With the absence of regulation, it's hard to ensure the fairness and objectivity of blacklists and alert lists, which could do harm to compliant platforms, Beijing P2P society wrote in a public statement.

Liu Shiyu, then vice-governor of China's central bank, said in September last year that internet financing should not touch illegal fund-raising and deposit taking. Liu also said that cash pooling is not allowed for online financing platforms, and a platform must not use business funds to guarantee loans.

Last year, Wang Yanxiu, director of innovative supervision affairs of the China Banking Regulatory Commission said P2P platforms should position themselves as intermediaries of private lending information rather than guarantee agents .

According to National Business Daily, Wang added that executives of P2P companies should have the ability to manage risk and run their businesses under technically reliable platforms.

"As regulation regarding P2P platforms is still under legislative stage, there lacks a clear guideline to define legitimate and competent players from wrongdoers," said a staff member of a Shanghai-based P2P company.

Transactions involving the nation's 2,600 P2P platforms doubled to 250 billion yuan ($41 billion) in 2014, according to the Internet Society of China.