Lending money to a friend is legal in China. Loan sharking is not. Unlicensed, business-style lending at very high interest can be prosecuted as illegal business operation under Article 225 of the Criminal Law, which carries up to five years in prison and, in the most serious cases, five years or more.
Where the legal line sits
Article 680 of the Civil Code prohibits high-interest lending and requires that interest comply with state rules. In practice, courts protect interest only up to four times the one-year loan prime rate (LPR) published by the People’s Bank of China; interest above that line cannot be enforced.
The criminal line comes from the 2019 joint opinion of the Supreme People’s Court, the Supreme People’s Procuratorate, the Ministry of Public Security and the Ministry of Justice on handling criminal cases of illegal lending. It defines illegal lending as lending for profit, without regulatory approval or beyond your business scope, on a frequent basis to unspecified borrowers, in a way that disrupts financial order. Frequent means 10 or more loans within two years.
Where the actual annual interest rate exceeds 36%, the conduct may be treated as serious under Article 225. For an individual, examples include lending 2 million yuan or more in total, earning 800,000 yuan or more in interest, or lending to 50 or more borrowers. Companies face higher thresholds, but Article 231 of the Criminal Law means a unit can be fined as well, and its responsible managers can be sentenced.
What this means in practice
One loan to one colleague, even at interest, is a civil matter. Running what looks like a lending business is not: a revolving pool of funds, dozens of borrowers, high monthly rates paid to you, and collection pressure. Using a company account, WeChat groups or a storefront to find borrowers makes the pattern far easier to evidence. Interest above the four-times-LPR ceiling is also unenforceable in court, so a lender cannot reliably sue on it.
A quick scenario
An executive lends from his personal account at 5% per month, which is over 60% a year, to roughly 30 borrowers. There are 12 loans in 18 months and 3 million yuan still outstanding. On those facts the conduct matches the 2019 opinion: frequent lending, unspecified borrowers, rates far above 36%, and amounts above the individual threshold. The exposure is criminal prosecution under Article 225, not merely an unenforceable contract.
Common questions
Q: Is private lending with interest illegal in China?
A: No, private lending is lawful. But interest above four times the LPR is not protected by the courts, and business-style lending can cross into criminal territory.
Q: When exactly does lending become a crime?
A: When you lend for profit without approval, frequently (10 or more loans in two years) to unspecified borrowers, at an actual annual rate above 36%, and meet the thresholds in the 2019 joint opinion.
Q: What are the individual thresholds?
A: Lending 2 million yuan or more in total, earning 800,000 yuan or more in interest, or lending to 50 or more borrowers.
Q: Can a company be punished rather than just the individual?
A: Yes. Article 231 of the Criminal Law allows a fine on the unit and sentencing of the directly responsible managers and staff.
Q: What is the punishment for illegal business operation?
A: Under Article 225, up to five years in prison plus a fine of one to five times the illegal gains; where the circumstances are especially serious, five years or more, with a fine or confiscation of property.
Wang Guan | Co-founder, Beijing Haolue Law Firm | +86 17813108512