China Fintech Today is a biweekly roundup of news from one of the most innovative sectors of the Chinese economy: financial technology, or fintech. All links and information sources are Chinese media reports, websites, and social media posts.
New fintech endeavors are under way as the industry develops…
Huangpu District and Guangzhou Development Zone have developed a fintech platform to promote the innovation of SMEs in Guangdong, Hong Kong, and Macau. On January 9, Huangpu District and Guangzhou Development Zone signed a strategic cooperation agreement with Zhongjing Think Tank Consulting to set up the platform. The Zone is the first to set up such a platform that will integrate “e-finance, digital finance, and smart finance.” Officials, entrepreneurs, and scholars were present at the platform launch. The platform will promote fintech innovation in the areas of credit financing, payment and settlement, risk management, insurance claims, supply chain financing, and more. This will help to reduce asymmetric information and improve credit evaluation.
Shanghai Pudong Development Bank’s Digital Eco-Bank, created in 2018, is off to a successful start. The bank released the first smart app in China and the first smart i-counter. The bank also launched the first open API bank and set up five innovation laboratories to research artificial intelligence and other technologies. The smart app included intelligent interactive voice applications and incorporated intelligent algorithms. Pan Weidong 潘卫东, deputy governor of Shanghai Pudong Development Bank, believes that the combination of artificial intelligence and finance will revolutionize the way finance is conducted. This will allow commercial banks to improve their level of service to all customers.
Regulations continue to improve the viability of the industry…
The Zhejiang Regulatory Bureau of the China Insurance Regulatory Commission issued the “Improvement of Internet Loan and Joint Loan Risks” to the Banking Supervision and Supervision Branch, Hangzhou Bank, and Hangzhou Branch of City Commercial Banks this month. The statement stated that core risk control procedures were not to be outsourced and should not provide funds to unlicensed institutions. Inter-regional loans were also restricted. Yu Baicheng (于百程), dean of the Zero Research Institute, stated that private banks and internet banks are the main participants in the internet loan business, and borrowers are often cross-regional. Therefore, the policy may harm this business.
However, the regulatory crackdown and legal enforcement have weeded out some of the worst players.
Over eighty college students in Zhoushan were defrauded of 1.5 million RMB through an online loan platform. The students had invested funds into an online lending company. A man named Zhou Moumou (周某某) is responsible for the scheme. He told the students that the money was invested poorly and that students could not get their money back. The Dinghai District Procuratorate of Zhoushan City approved the arrest of Zhou on the suspicion of illegally accepting public deposits. China has introduced policies suspending online lending to college students due to the ubiquity of campus loans.
Shenzhen police uncovered an illegal fundraising platform called Fortune China. Six suspects were detained under the suspicion of illegally accepting public deposits. The criminals defrauded customers of over 1.19 billion RMB ($175 million). The platform was carrying out fundraising activities without government approval, publicizing the business to the public, falsely promising the return of principal or interest in a certain period of time, and illegally absorbing funds from the public. The platform advertised high interest rates of 14% annually. The police seized the bank account of the company as well as company property, which included real estate.
Shenzhen has filed investigations on 62 P2P lending platforms in order to recover losses of 2.3 billion RMB ($339 million). Criminal action was taken against 190 people. In the fight against malicious debts, 11 online lending platforms were pursued and over 400 million RMB ($59 million) was recovered. The Shenzhen Economic Investigation set up an internet platform to register investor complaints. The total number of closed and problem platforms in 2018 amounted to 1,297, with a loan balance of over 100 billion RMB ($15 billion). Risks of P2P lending platforms have mounted since June 2018, due to tightened liquidity, slowing growth, market panic, poor regulatory compliance, and low levels of investor education.
China’s fintech leaders are moving into Southeast Asia and other regions as China’s fintech industry becomes more regulated.
China UnionPay and Huawei announced that they will launch Huawei Pay in Russia. Huawei Pay is a cloud service used on Huawei’s mobile devices. Huawei Pay supports bank cards issued by 66 financial institutions. The app completed transactions in the amount of 4 billion RMB ($632 million). Alternative payment methods are expanding globally. In another example of overseas expansion, WeChat launched a digital payment platform in Malaysia, allowing users to transfer funds between family and friends, or to make payment to offline sellers.
China’s internet finance industry grew starting in 2013, but regulatory restrictions starting in 2018 resulted in tightening capital flows and increasing market panic, with deterioration of the P2P lending industry. Some P2P firms had to turn to large-scale layoffs in order to survive the crackdown, and many attempted to expand into new business areas. Fintech firms are increasingly turning to Southeast Asia for business expansion. Firms such as Ant Financial, Jingdong, Xiaomi, Yixin, Zhangzhong, and Fanpujinke have already entered into Southeast Asian markets. The fintech market in Southeast Asia remains in the early stages, as average income per capita is relatively low. Southeast Asia also lacks risk control in its credit system. Residents do not have a credit history in countries like Indonesia and Vietnam, and big data firms are in the early stages.
Zhongan Insurance’s subsidiary, Zhongan International, has entered an agreement with Southeast Asian O2O platform Grab to set up a joint venture in internet insurance in the region. Zhongan International will construct a digital insurance sales platform for the joint venture and provide technical support. The platform is to be launched in Singapore this year and expanded to other markets in the area. The platform will allow users to purchase online insurance through Grab mobile phone software without insurance intermediaries. Grabpay will automatically deduct payments through the platform. Grab will cooperate with Chubb to provide drivers’ income insurance for Grab drivers in Singapore.
China Fintech Today is a biweekly column on SupChina.