In a four-year campaign to root out risks to China’s financial system, regulators have set upon their biggest target yet: the world’s largest financial technology sector.
All three financial watchdogs have made it their primary goal this year to curb the “reckless” push of technology firms into finance, taking aim at a sector where loose oversight fueled breakneck growth for companies such as Ant Group and Tencent Holdings’ Wechat Pay. They have the green light from Chinese President Xi Jinping (習近平), who in November last year called on regulators to “dare to” master their supervisory role.
The coordinated onslaught guarantees a shake-up among the country’s more than 7,000 microlenders, but regulators have made it clear they intend to stretch well beyond, into every corner of Internet finance from payments to credit scoring, wealth management to partnerships with banks and more.
Illustration: Louise Ting
Fintech is the latest sector marked for an overhaul since 2017, when China’s leaders pledged to clean up threats to its US$53 trillion financial industry, tackling property loans, opaque wealth management products and fraud-riddled peer-to-peer (P2P) lending.
“Everything points to a toughening regulatory stance, which will surely bring more curbs down the road,” said Zhang Xiaoxi (張曉曦), a Beijing-based analyst at Gavekal Dragonomics. “Chinese regulators wouldn’t be comfortable with any financial activities staying outside their purview.”
No punches were pulled in November last year when authorities squashed the initial public offering of billionaire Jack Ma’s (馬雲) Ant, stunning investors from Shanghai to New York.
The world’s most valuable fintech has become a symbol of the no-holds-barred campaign under way, with Ant executives considering a plan that would make the firm more like a bank, subject to tighter oversight and higher capital requirements.
Authorities have told Ant it needs to get closer to its roots as a provider of payment services, while putting online transactions under oversight.
China’s central bank last week warned that any firm with more than 50 percent of the market in online payments or any two with more than two-thirds could face antitrust probes, and in a worst-case scenario be broken up.
Ant’s Alipay and Wechat Pay are the biggest players in mobile payments, although the regulator has yet to clarify how it will judge market share.
Years of a head-to-head rivalry between Ant and Tencent dented profitability of the businesses, and transaction growth has fallen to less than 10 percent, from more than 60 percent two years ago. Still, the data and user stickiness from payments has enabled the firms to diversify into other financial segments, which are being put under supervision one after another.
Analysts at Citigroup predict new rules could include a cap on how much financial groups can partner with online lending platforms, and funding and capital requirements.
Chen Shujin (陳姝瑾), an analyst at Jefferies Financial Group, said that regulators could also further crack down on their distribution of mutual funds and other wealth management products, standardize calculations on interest rates and force data sharing with the central bank’s credit-scoring system.
The People’s Bank of China this month said that it needs to move fast to fill the gaps in oversight, including banning overhyped marketing of financial products online and encouragement of excessive borrowing.
Guo Wuping (郭武平), head of consumer protection at the banking regulator, has said that easy access to online credit led many low-income and young people to be mired in debt.
Concerns about surging consumer debt have long unnerved authorities seeking to sustain the nation’s economic rise. Over the past decade, the speed with which Chinese households accumulated leverage surpassed every other major economy, according to the IMF.
Consumer loans climbed to a record 49 trillion yuan (US$7.62 trillion) in November last year, stoked by a housing boom and ready access to credit, but the official data does not capture all the risk, as loans offered on fintech platforms are mostly uncounted.
Ant has been at the forefront of the boom, providing small, unsecured loans to about 500 million people. Out of the about 1.7 trillion yuan in consumer loans it has underwritten, only about 2 percent were kept on its balance sheet with the rest funded by third parties or packaged as securities and sold on.
Its success spurred a crowd of imitators both large and small.
Rival units of Tencent, JD.com, Baidu and nearly 7,200 other microloan operations are scattered across China, nearly twice the 4,000 traditional banks and even surpassing the number of peer-to-peer lending platforms at the peak.
If what happened to the peer-to-peer lending industry is an indicator, the future for the vast majority of those fintech firms is bleak. In just two years, China purged the entire industry, which in its heyday had upwards of US$150 billion in loans outstanding and more than 50 million users.
Once hailed as an innovative way to match yield-chasing savers with cash-strapped borrowers, peer-to-peer lenders proliferated, helping fund everything from honeymoons and property purchase to companies’ working capital. Frauds and defaults became rampant, in some case leading to suicide and street protests.
Ma, who never dabbled in peer-to-peer lending, attempted to draw a line between the sector and his empire during a speech at the Bund Summit in Shanghai in October last year.
“We can’t dismiss Internet technology’s contribution to financial innovation simply because of what happened to P2Ps,” he said.
Once the sector came in for special scrutiny, even the biggest players such as Lufax and Dianrong.com were not spared, with the banking regulator saying in November last year that none of the platforms had survived the clampdown.
Officials have had a more measured approach to choking off shadow banking — often loans masquerading as investment products. A lifeline for many small enterprises and property developers shunned by traditional lenders, the sector swelled to US$10 trillion at its peak, driving up leverage and interconnectedness across the economy.
A subsequent crackdown shrank assets managed by a hodgepodge of institutions from banks to insurers and trusts by US$1 trillion from 2017 to 2019, forcing a record surge in bad loans. The government eased some curbs last year to stabilize the economy after the COVID-19 pandemic struck, halting its contraction.
Seen as necessary to ensuring financial and social stability in the world’s second-largest economy, the latest regulatory charge is not without risks. Easy access to credit has helped fuel consumer spending, boosting the economy and building wealth.
The sweep against fintech firms also comes as officials are trying to make the economy more self-sustaining, and they would need consumption and business investing to pull off the shift.
For now, financial stability remains the overarching concern.
“Fintech has not changed the nature of finance as a risky industry,” People’s Bank of China Deputy Governor Pan Gongsheng (潘功勝) said in an op-ed in the Financial Times on Wednesday. “China is trying to strike a balance between encouraging fintech development and preventing financial risks via prudent regulation.”
In their New York Times bestseller How Democracies Die, Harvard political scientists Steven Levitsky and Daniel Ziblatt said that democracies today “may die at the hands not of generals but of elected leaders. Many government efforts to subvert democracy are ‘legal,’ in the sense that they are approved by the legislature or accepted by the courts. They may even be portrayed as efforts to improve democracy — making the judiciary more efficient, combating corruption, or cleaning up the electoral process.” Moreover, the two authors observe that those who denounce such legal threats to democracy are often “dismissed as exaggerating or
The Chinese Nationalist Party (KMT) caucus in the Legislative Yuan has made an internal decision to freeze NT$1.8 billion (US$54.7 million) of the indigenous submarine project’s NT$2 billion budget. This means that up to 90 percent of the budget cannot be utilized. It would only be accessible if the legislature agrees to lift the freeze sometime in the future. However, for Taiwan to construct its own submarines, it must rely on foreign support for several key pieces of equipment and technology. These foreign supporters would also be forced to endure significant pressure, infiltration and influence from Beijing. In other words,
“I compare the Communist Party to my mother,” sings a student at a boarding school in a Tibetan region of China’s Qinghai province. “If faith has a color,” others at a different school sing, “it would surely be Chinese red.” In a major story for the New York Times this month, Chris Buckley wrote about the forced placement of hundreds of thousands of Tibetan children in boarding schools, where many suffer physical and psychological abuse. Separating these children from their families, the Chinese Communist Party (CCP) aims to substitute itself for their parents and for their religion. Buckley’s reporting is
Last week, the Chinese Nationalist Party (KMT) and the Taiwan People’s Party (TPP), together holding more than half of the legislative seats, cut about NT$94 billion (US$2.85 billion) from the yearly budget. The cuts include 60 percent of the government’s advertising budget, 10 percent of administrative expenses, 3 percent of the military budget, and 60 percent of the international travel, overseas education and training allowances. In addition, the two parties have proposed freezing the budgets of many ministries and departments, including NT$1.8 billion from the Ministry of National Defense’s Indigenous Defense Submarine program — 90 percent of the program’s proposed
RSS