China’s lead in fintech investment an opportunity for UK firms, says report
China leads the world in capital being poured into the financial technology sector, with investment estimated to top 56 billion yuan in 2016 on strength in payments and alternative finance, according to a UK-government sponsored report released on Tuesday.
The significant growth and magnitude of fintech investment in China is underpinned by robust access to capital, both through public and private sources of funding, accounting firm EY said in the report.
On the public funding front, the fintech sector is supported by state-owned investment from more than 750 government guided funds, as well as grants, tax breaks and subsidised technology parks, and access to private funding including an active initial public offering market.
Meanwhile, private funding has also substantially supported early-stage and growth investments, with a large number of funds competing to invest in a limited pool of financially viable ideas.
China’s fintech sector is dominated by a handful of home-grown tech titans, such as e-commerce giant Alibaba Group via its affiliate Ant Financial, the nation’s leading social network firm Tencent Holdings, China’s dominant search engine operator Baidu and e-commerce major JD.com.
These players have jumped into the fintech sector by leveraging their relative competitive edge across a variety of subsectors such as online shopping, social networking and web search. Alibaba owns the South China Morning Post.
“We see relatively modest opportunities for foreign investors to aggressively pursue the Chinese market,” the report said, citing China’s strong access to capital and current market dynamics, where domestic sources are more than meeting the demand for fintech capital.
The report, commissioned by the UK government, also highlighted the investment and trade opportunities between China and Britain.
“For Chinese fintechs, we believe there could be opportunities in the UK market relating to payments solutions to serve the vast number of Chinese tourists and students coming to the UK each year, which account for over £3 billion in spend annually,” said the report.
As such, Chinese fintechs, primarily payments players, should look to partner with UK-based retailers, acquirers, and financial institutions to develop cross-border payment propositions to serve this sizeable market, it added.
Ma Jun, chief researcher at wdzj.com, which monitors the online lending sector, said payment players showed growing interest in making forays overseas as they expand from being a dominant player at home. He said China’s fintech sector is underdeveloped in sub-segments such as robo-advisors, or automated online wealth management services.
“Policy stance of course acts as another factor in guiding the fintech sector where innovation could be affected by tighter regulation,” he said. “It needs a delicate balance between regulation and innovation.”
The EY report noted that “the size and scale of China’s fintech sector provides too big an opportunity to ignore, with the world’s largest, and increasingly digitally-savvy consumer base to target”.