China’s Fintech contributes to world in technology and business models


Since 2013, which is viewed as the first year of the internet finance era in China, Fintech has greatly changed people's life and altered established structures in finance sector.

The EY FinTech Adoption Index 2017 showed that Chinese consumers' Fintech service adoption rate reached 69 percent, well above the global average of 33 percent.

Another report by World Economic Forum said that China's innovation-friendly atmosphere and not consumer-focused traditional finance sector boosted such a remarkable development.

China Daily reporter interviewed Professor Liao Li, executive associate dean of PBC School of Finance, Tsinghua University, and also director of the school's Fintech Lab, which was set up in 2012. Here are the excerpts.

Q: What do you think are the main factors behind the internet finance boom in China in the past five years?

A: There are three driving forces, technology, market and regulation.

First, popularity of the smartphone and development in internet technologies, big data, cloud computing, artificial intelligence and blockchain in China, have provided a technological base for various business models in internet finance and have enabled various products to run smoothly.

Second, with China's economy growing for more than 30 years since the opening-up and reform, the people's disposable income and needs to finance their consumption have both increased. The need of asset allocation have driven sales of financial products via internet and the need of consumer finance have ushered in a large number of online loan and even short-term cash loan platforms.

Small and medium-sized enterprises' difficulty in fundraising has also provided wide room for internet-based micro-loans.

Third, China has been undergoing a series of regulatory changes, including interest rates liberalization and allowing mixed operation in finance sector, similar to what happened in the United States.

In the United States, in 1975, the deregulation of fixed minimum commission at stock exchanges boosted the development of online discount brokers. In 1986, liberalization of interest rates gave a boost to internet banks and the Jumpstart Our Business Startups Act, which was passed in January 2012, also boosted equity crowd-funding.

These changes, combined with the government's long-term support for innovation, especially the mass entrepreneurship and innovation initiative, have jumpstarted the entrepreneurial and innovative activities in the internet finance sector.

Executive Associate Dean of PBC School of Finance, Tsinghua University Liao Li makes a speech on the 2nd China Fintech Conference in Beijing on Sept 17, 2017.

Q: What are internet finance's contributions to the whole economy in China?

A: First, internet finance has boosted efficiency of the whole economy.

As China's mobile payment value has exceeded 38 trillion yuan($5.69 trillion), 50 times of that in the United States, this credit mainly goes to internet-based third-party payment.

Mobile payment has lowered transaction costs and increased transaction efficiency and hence has improved the efficiency of the whole economy.

Second, internet finance has improved financial inclusion in China.

Right now, most internet finance is for individuals, or households, or small and micro firms, which are under-covered by traditional finance. Low-cost, low-entry barrier and disintermediation business models of internet finance has made serving these groups possible. Taking internet loans as an example, in the year 2016, loans lent on internet platforms neared 3 trillion yuan, most of which went to areas uncovered by traditional finance.

China's internet finance development in the past five years is well in line with the G20 High-level Principles for Digital Financial Inclusion rectified on the Hangzhou Summit held between Sept 4 and Sept 5.

Third, China's internet finance has helped the country build its credit system.

Progress on the building of China's personal credit system used to be slow for a long time. However, as internet finance has enabled more individuals to get their loans via internet-based platforms and as there are no universal criteria for judging one's credit score, more and more big data companies or Fintech companies have increased their R&D on credit scores. Although there is a long way to go, these companies, which have aroused Chinese people's credit awareness, are the embryonic form of the country's credit sector.

Fourth, internet finance has boosted employment. According to Fintech Lab's database, the number of Fintech companies has exceeded 10,000 and the largest Fintech company has more than 40,000 employees. Fintech has become an increasingly important force in driving employment.

Q: According to your years of study on internet finance, what are the uniqueness of China's internet finance?

A: One of the uniqueness of China's internet finance is that it originated from serving a large number of population who were under-served by traditional finance. This population was so big that Fintech companies crossed their break-even point quickly. I call this the second demographic dividend of China.

Second, China's mobile payment, which is developed, has made and will make lots of Fintech company's business models possible.

Q: What contribution has China's internet finance made to the whole world?

A: In addition to mobile payment, which has expanded their presence overseas, we have noticed that Chinese cash loan companies, such as Wecash and Mint Quantum have brought their business models and risk-control technologies to emerging markets like the Indonesia and Brazil.

Hence, in the area of internet finance, China has made contributions both in technology and in business models.

Q: Chinese tech companies like Alibaba have also invested in developing countries such as the BRICS. What are your views on Fintech development among these countries?

A: It is predictable that more Chinese Fintech companies will enter emerging markets and other underdeveloped regions. However, they will face great challenges in regulation. On the one hand, regulatory mindsets and ways are different from country to country. On the other hand, Fintech, which itself is a fast moving and changing industry, has raised lots of questions to regulatory bodies.

From China Daily, original publish:


>Tsinghua National Institute of Financial Research