China’s regulators strive to keep up with fast-growing ‘fintech’
Regulators torn between allowing the state-backed system to become irrelevant and wiping out China’s edge as a global financial technology leader
From mobile payments to online lending, China’s boom in “fintech” applications is creating new headaches for regulators used to supervising conventional financial deals.
If regulators stay out of the financial technology explosion, the popularity of non-conventional financial services may make the state-backed financial system irrelevant. That can create huge risks, as was the case in 2015’s stock market rout. But if regulators step in too deep, intervention can easily kill new services and wipe out the advantages China enjoys as a global fintech leader, researchers and industrial executives said at a conference in Beijing early this week.
A “cashless” society is quickly emerging in China. Services provided by Alibaba and Tencent are forcing regulators to impose restrictions and promote the state-backed China UnionPay system to catch up with new payment methods, such as those based on QR code technology. In the credit information field, players like Alipay are accumulating personal credit data quickly, although China’s central bank has declined to issue any formal license. Alibaba owns the South China Morning Post.
Sun Guofeng, head of the research institute with the People’s Bank of China, said at the forum on Monday that China has followed a model of “massive regulation after rapid development” in fintech, meaning regulators have awakened to a completely new type of technology-enabled business.
Mobile payments in China reached US$2.9 trillion last year, according to a United Nations report. That amount is 20 times larger than that of the US and surpasses the gross domestic product of Japan, as hundreds of millions of Chinese consumers change their payment habits.
In some respects, China’s regulators are leaping into this new world of payments. The People’s Bank of China, for instance, has been talking about creating a sovereign digital currency while continuing to talk down other non-sovereign digital currencies, such as Bitcoin.
Li Yang, a senior researcher with the Chinese Academy of Social Sciences and a former adviser to the central bank, said China’s regulators and researchers need to catch up with consumers and professionals who have embraced fast-changing fintech.
“We should tolerate the development of fintech and hold it in awe,” Li said.
The arrival of big data, cloud computing, artificial intelligence and block-chain technology to the financial sector is providing regulators globally with a new challenge. But the situation is especially acute in China, partly due to its market’s sheer size.
China started a one-year inspection programme last April as part of a crackdown on the unruly internet finance sector after a series of fund-raising crimes triggered massive protests. A few online Ponzi schemes were smashed, with their ringleaders going to jail.
But the regulation failed to keep up with the complex development of e-finance products or the fast development of fin-tech activities. Authorities were forced to extend the clean-up for another year, according to Hu Bin, a CASS researcher who has followed the developments.
Hu said China’s fragmented regulatory framework ill-suits an era of increasingly blurred lines between stocks, banking and insurance. In addition, Chinese regulators are not seeing fintech in terms of the big picture.
“China is at the forefront of the fintech sector in the world and its development is closed watched by other countries,” said Sun Tao, senior director of strategy and research at Ant Financial, a subsidiary of Alibaba Group. “We must avoid the situation of getting up early but arriving at the feast late.”