Are the Investors in Chinese P2P Lending Market Smart?

Abstract

The market of Chinese P2P Lending has rapidly grown in the last ten years. We use transaction records of RRD (renrendai.com) which is one of the leading platforms in P2P Lending of China, analyzing the default factors of Contracted Unsecured Loan Securities (CULSs), and estimating the default rate of Non-Contracted Unsecured Loan Securities (Non-CULSs). It is obvious that the Chinese investors of P2P Lending are clever for the good reason that the actual default rate of CULSs is 17.83%, while the expected default rate of Non-CULSs is about 35%. However, the actual default rate of CULSs is too high to afford in general, so there are many things that need to be improved for RRD. Moreover, the decision scheme of CULSs’ interest does not depend on credit ranking of borrowers but almost on its duration, causing a strong multiple collinearity between its interest and duration, this decision scheme also need to be modified for RRD.