Have Henanese Really Been Discriminated Against in Chinese P2P Lending?

Abstract

Using RRD transaction data, the purpose of this paper is to determine how much the borrower’s hometown in Henan province affects the funding and default of loan securities, i.e., how much discrimination against Henanese exists in Chinese P2P lending. The estimation results of the statistical model show that while there is no discrimination against the provincial level origin of borrowers, lenders substitute the municipality level origin for economic wealth (GDP per capita at the municipality level) and prefer borrowers from wealthier regions. This preference results in a higher return on investment, which is entirely rational behavior. It is commendable that lenders are clever enough to use the nonfinancial attributes of borrowers, such as region of origin, in their investment decisions to compensate for incomplete information.