China's central bank to better regulate internet banking as private lenders start to mushroom

China’s central bank is preparing a new piece of legislation on internet banking, at a time when Premier Li Keqiang is pushing his “Internet-first” policy and several Chinese internet firms are launching private banks.

The legislation has been approved by the Central Committee and State Council, China's cabinet, and is expected to be announced soon, according to Zhang Tao, director of the legal department at the People’s Bank of China.

During a financial summit in Shanghai on Sunday, he said the new set of rules, called “Guidance regarding the promotion of healthy development in internet banking”, would focus on encouraging innovation, preventing risk, promoting the industry’s healthy development amid an ordered market, and pushing open competition. 

This could help plug a crucial gap as China’s state-run lenders have been criticised for favouring state-owned firms over individuals and small businesses due to the lower level of risk. 

In addition to offering smaller firms more liquidity and the opportunity to grow, the rise of an internet banking industry is also seen as a potential means to accelerate financial reform in the rest of the banking sector.