Technology that makes investing in non-tradable securities easy isn’t a sure way to make money. In China, a million companies have used loose regulations on internet investing to fund risky ventures. This isn’t all bad, but there are drawbacks to investing in such opaque ventures.
In just one corner of the booming online finance sector, more than 5,700 firms are registered with the Association of Shanghai Internet Financial Industry, a quasigovernmental group, to match small lenders and borrowers.
Not every company is registered, and more than half of those that are have had repayment problems or been investigated by the police, according to the association.
In January and February, Chinese electronics maker Cosun Group failed to repay about $166 million in bonds sold through an online marketplace owned by Ant Financial Services Group. Ant is an affiliate of e-commerce giant Alibaba Group Holding Ltd. and is valued by some analysts at more than $70 billion.
Many of the investors used Ant’s highly popular Alipay online payment system. After at least 13,000 Ant customers were affected, Ant said it was working to get them repaid but has declined to comment since then. Cosun couldn’t be reached for comment.
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