The China Banking Regulatory Commission appears ready to issue new guidelines that will cap P2P lending and curtail some of the risk inherent in the sector.

Chinese regulators are considering new rules to cap P2P (peer-to-peer) lending ito control risk and protect investors, eight months after it initiated a campaign to "clean up" faulty P2P lenders, according to Chinese media reports.

An individual lender can provide loans of no more than RMB200,000 (US$29,976) on one P2P platform, and can lend no more than RMB1 million (US$150,000) in aggregate across different P2P channels.

For other non-individual legal entities, the cap is RMB1 million on a single platform and RMB5 million across all P2P channels, according to Chinese media reports citing an insider.

These rules are likely included in a new regulation to be jointly released soon by the China Banking Regulatory Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, and the Cyberspace Administration of China.

The regulators are concerned about concentrated financial risk and protection of small investors. Internet lending should be focused on small loans to benefit the average borrower and lender, and such lending should be diversified, the regulators believe.

For P2P lenders that already target small loans, the proposed regulation will help improve market condition by "squeezing" out large loans, mostly risky real estate project borrowings spun off from banks.

The new regulation is likely to be released early next year, after the completion of the current P2P "clean-up" campaign.

A total of 515 P2P lenders in China have closed doors or exited the sector during the first half of the year. There are 2,349 P2P lenders currently in operation in China, compared to over 4,000 P2P lenders that have been in existence, cumulatively.