Chinese shadow bankers are going mainstream, as online alternative financing in the country continues to grow exponentially.

A new report outlines how much online platforms have grown throughout Asia, with P2P lending, crowdfunding and invoice trading (factoring) the most common forms.

The report, co-authored by researchers from the Universities of Sydney, Cambridge and Tsinghua, finds that “China is the world’s largest online alternative finance market by transaction volume, registering US$101.7bn (or Rmb638.7bn) in 2015”. This represents 99% of the total Asia Pacific region.

The figure is all the more startling, considering it has grown from US$5.56bn in 2013: a growth rate of 328% per year.

Dr Luke Deer of the University of Sydney tells GTR that in a push to regulate a widely-publicised shadow banking network which was estimated to be worth US$5.8tn by JP Morgan in 2013, the government encouraged development in the online lending industry. However, much concern remains as to the stability of some of these providers.

Shadow bankers have therefore opened online outlets in a move that allows them to lend directly without an intermediary, therefore qualifying for “marketplace lending” classification. This, in turn, keeps the authorities at arm’s length.

“By bringing it out in the open, maybe it can be regulated, but how effective that is, that’s another thing. More reputable outfits say 80% of the market is shadow banking providers who are unstable and are going to go under,” Deer says.

Part of the problem is opacity in Chinese commerce: despite creating online marketplaces, it’s unclear what a lot of these former shadow bankers are actually doing in practice. “Who knows?” says Deer. “We’ve tried checking, but a lot of them have evolved from informal financial institutions, shadow banking, and are advertising as P2P. They offer an expected return on products which people invest in. But what’s actually going on is anyone’s guess.”

“More reputable outfits say 80% of the market is shadow banking providers who are unstable and are going to go under,” Dr Luke Deer, University of Sydney

The growth can also be traced back to China’s top-heavy lending environment, where credit conditions are loose at the high end of the market. It’s a condition played out across Asia and the world, in fairness, where large corporations have no trouble tapping bank finance, but smaller companies are struggling to do so.

In Australia, there has been a huge growth in factoring, a relatively nascent market Down Under, where large players backed by parent companies in the US and Germany have been making inroads.

Across Asia Pacific, invoice trading – as it’s otherwise known – reached US$1.46bn in 2015. In Australia, of total alternative finance volumes of US$348.37mn, factoring accounted for US$120mn.

Again, this is catering mainly for the lower end of the market. SMEs are thought to find online lending models such as factoring and P2P less arduous, less complex, cheaper and more accessible than traditional banking channels.

While China dominates, the report outlines the growth in online alternative finance throughout the region:

“Excluding mainland China, the rest of the Asia Pacific region recorded a volume of US$1.12bn in 2015 with a 313% year-on-year growth rate from the US$271.94mn raised in 2014. Japan’s online alternative finance market accrued US$360.23mn in 2015, followed by $348.37m originated in Australia, US$267.77mn in New Zealand, US$41.18mn in South Korea, US$39.91mn in India and US$39.76mn in Singapore,” the report reads.