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Small investors must beware fairytales of speculation bubbles that siphon off wealth

China Daily | Updated: 2019-12-09 07:48

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Hunan, Shandong and Sichuan provinces and Chongqing have banned the peer-to-peer online loan business, and it is believed the other provincial-level regions will follow suit. Guangming Daily comments:

The P2P online loan industry was once seen as an important innovation of internet finance, and it won great support from local governments. At that time, the supporters of the industry believed the efficiency of the internet would bridge the information gap between the supply and the demand sides and the invisible hand of market would naturally ensure the healthy growth of the emerging industry.

But they ignored the fact that no matter how much digital technology the industry adopts, it is essentially a business that pursues the maximization of profits.

All stakeholders in the business believe that it will be winner take all in the game, so all parties pin their hopes upon monopolizing the market, their competition has been derailed from the right track. Which means in an ill-supervised market, the competition is no longer based on efficiency and innovation, but instead on empty promises of exorbitant returns for investors.
Many investors wished to take a free ride in the easy money era without knowing that the industry was actually creating little added value especially after the competition in the industry became fierce. No wonder many investors failed to realize how unsustainable the business model was until many P2P loan companies went bankrupt, disappearing with their investment.

That one after another provincial-level governments are changing their attitude toward the innovation they once endorsed, along with the long queue of people appealing to the government to help them get their money back, has demonstrated the extent to which their original support had fostered the distorted growth of the industry, and misled people's investment decisions.

The governments of various levels have to learn a lesson from the collapse of the P2P loan industry. As the last defenders of market order, they should always keep a cool head, and not be carried away by fairytales about cutting-edge technologies fabricated by hotheaded speculators.

Otherwise, the government's creditability, market order and the public interests will also be at stake once the fairytales come to nothing.

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