Founder of major Chinese P2P lender sentenced to life in prison for fundraising fraud

Zhou Shiping

7th December 2023 – (Beijing) Zhou Shiping, the founder and chairman of Hongling Capital, a prominent peer-to-peer (P2P) lending company in China, has been sentenced to life in prison for various crimes, including fundraising fraud. The High People’s Court of Guangdong province made the announcement, stating that Zhou will also face deprivation of political rights, with all his personal property to be confiscated.

The Shenzhen Intermediate People’s Court of Guangdong province delivered sentences to 17 additional defendants involved in the case, with imprisonment terms ranging from 30 months to 11 years. These individuals were found guilty of offences such as fundraising fraud, illegal absorption of public savings, and professional embezzlement.

Over a period spanning from 2009 to 2021, Zhou and his employees amassed approximately 109 billion yuan (US$15.3 billion) from over 480,000 individuals by using online investment structures disguised as debt swaps and consumer finance products.

Reports indicate that Hongling Capital faced a significant shortage of funds during this period. The funds collected were primarily utilized to cover the company’s capital expenditure, as well as principal and interest payments for maturing debt and other financing projects. As the actual controller of some of the investment vehicles, Zhou himself obtained over 20.4 billion yuan, according to the Shenzhen court.

Peer-to-Peer (P2P) lending platforms in China were once seen as a significant part of the country’s credit mechanism, with online platforms issuing over US$150 billion in loans from 50 million investors at the industry’s peak in 2015. However, the industry faced significant challenges related to fraud and defaults. In response, regulatory authorities initiated a crackdown in August 2016 to curb fraudulent activities and regulate the country’s rapidly expanding shadow-banking industry.

By 2020, China had effectively declared triumph over online P2P lenders, with only three platforms remaining out of approximately 5,000 at their peak. The industry rules, released in August 2016, imposed restrictions on the size of loans individuals and companies could borrow through a single P2P platform, significantly impacting companies like Hongling Capital. As a result, the company announced its intention to wind down existing products and distressed assets and exit the P2P business within three years.