China’s peer-to-peer (P2P) lending market has grown by leaps and bounds in the past couple of years and has emerged as the largest in the world, driven by the supply of funds from retail investors and by the demand for access to finance from SMEs.

However, with the rise in online P2P platforms, the number of fraud cases has also been on the rise. In April, Shanghai police arrested 21 executives for being involved alleged “illegal fundraising” at Zhongjin Capital Management, a Shanghai-based investment platform, that promised retail investors high returns.

Earlier in February, Chinese police arrested over 20 people from Ezubao, once China's biggest P2P lending platform, which took more than $7.6 billion in two years from over 900,000 investors.

Spark Wang at Wolters Kluwer Financial Services in Shanghai told Financial Times that the P2P loans were riskier than some of the products issued during the US subprime crisis, particularly given their high cost and short duration.

In a latest report, Sheng Song, the director of its statistics department at People’s Bank of China, has said that the PBoC is studying ways to collect and distribute data on how funds raised online are being used because of risks posed, Reuters reported.

Moreover, PBoC Deputy Governor Guo Qingping also highlighted the rise in illegal fund-raising and other financial fraud in the recently held 2016 anti-money laundering situation briefing by the PBoC.

The effort by the Chinese government to put a check on this loosely regulated P2P lending industry has been going on for quite some time now. Sources familiar with the matter told Reuters that the government has come up with a plan to “clean up” the country’s financial system, including rules to limit the activities of P2P lending firms.

The plan outlines stricter rules for P2P platforms, restrict the activities of unlicensed online financial platforms, forbids false advertising of financial products and prohibits non-financial companies from registering names including “finance”, “asset management”, “P2P”, “payments”, “fund”, and “trading exchange”.

To that end, it needs to be mentioned that China is the world’s largest Bitcoin market. With China now set to impose stricter rules on peer-to-peer lending market, it remains to be seen what this would mean for bitcoin businesses operating in the country, as Bitcoin network is nothing but a P2P network that allow online payments to be sent directly from one party to another without going through a financial institution.