Using data from one of China’s largest P2P operations, Renrendai (Renrendai 人人贷), the authors of the paper highlighted this week, Fabio Braggion, Alberto Manconi and Haikun Zhu from the universities of Tilburg in the Netherlands and Bocconi in Milan, set out to provide an answer to the question in the title.
What they needed for their study was an event, or events, that altered demand for credit but not its supply. This they found in China in 2013 and again 2015. In 2013 the government wanted to slow down a racy property market and increased down-payment minimums for second homes from 60% to 70% of the property’s value. In 2015, to stimulate flagging demand, they cut the minimum deposit required by first time buyers from 30% to 25% of the value of a property.
These moves, to tighten and then loosen, weren’t applied across all cities in China which gave the researchers control data to compare with cities directly affected.
Using the Renrendai data for all loan applications, not just the successful ones, they were able to observe what effect this had on loan demand and, as they and you might have suspected, the effects were pronounced. As the government tightened loan demand rose, as it loosened P2P loan demand fell. So yes, fintech could be a threat to financial stability if it became an enabler of policy circumvention.
Recent moves by China to tighten up excesses in the shadow-finance complex however suggest the authorities are on the case in terms of recognizing how such problems might arise. Talk therefore of a shadow-finance time-bomb is thus very misplaced. Compare this approach with the Western model; that’s to wait until innovation causes convulsions (or worse! Mortgage backed securitization anyone?) and clean the mess up afterwards.
I know which approach I’m more comfortable with.
You can access the paper in full via this link Fintech, P2P and China.
Happy Sunday.