China Tells Investment Companies to Hide

Bloomberg: China Evicts Investment Firms Amid Fears of Unrest

China’s authorities, seeking to forestall potential social unrest due to growing failures of investment firms and online lenders, are ordering many to break leases and close their storefronts on busy streets -- lest they become magnets for protesters.

And that’s not all. Registration of all new companies with finance-related names was suspended nationwide in April, according to people familiar with the matter who asked not to be identified because they’re not authorized to speak publicly. n Shenzhen, office building management now must submit contact information for employees of all finance industry-related tenants to the local security bureau.

The article goes on to discuss how dozens of start-up credit firms moved into a building a drove the rent up 15 percent. Now they've all left, the building is empty and rents are plummeting. It reminds of this story posted in 2014: Textbook Credit Implosion Underway in Sichuan Province

At the office of Chengdu's (capital of Sichuan) Xida Financial Supermarket Building 3, you can still rent empty space for ￥80 per sqm. Others who moved in early are paying ￥260 per sqm; prices have collapsed 70%. The sales agent tells the reporter, "If you don't believe me, I'll show you other companies' rental contracts, but you have to keep it a secret. If you can move in before November 8, we can discuss the price further."

Rent no doubt was high due to growth in investment management/ advisory firms. At end of December 2013, there were nearly 5,000 of these financial firms, an increase of roughly 4000 from June of the same year!

In this case, it is not the market forcing firms out, but the government wary of a market downturn.

It may be too late. More than 90 percent of China’s almost 4,000 remaining lending platforms were promising their 2.9 million investors annual returns ranging from 8 percent to 24 percent in March, according to Yingcan Group, which tracks the data. That compares with China’s official deposit rate of 1.5 percent, and comes a time when the economy grew at the slowest pace in a quarter century, while corporate borrowers’ ability to service their debt has dropped to the weakest on record.

Such high returns are unrealistic in an economic downturn, and more platforms are bound to fail, Renmin Law School’s Yang said.
"Who in the world can generate 24 percent? It’s impossible," said Soul Htite, founder and chief executive officer of Shanghai-based online lender Dianrong.com, who foresees only about 20 P2Ps ultimately becoming successful, based on his experience in Silicon Valley and co-founding the LendingClub Corp. in the U.S. "Companies disappear for multiple reasons. One of them is they’re criminals, and they’re caught. For others, they have a non-realistic business model."