Chinese Official Says Country Must Ensure Financial Innovation Maintains Fair Competition and Doesn’t Create Oligopolies

China must ensure that financial innovation is able to maintain fair competition and doesn’t lead to the formation of oligopolies or entry barriers, according to Xiao Yuanqi, chief risk officer at the China Banking and Insurance Regulatory Commission (CBRIC).

Xiao, whose comments came during the Caixin Summit in Beijing, noted that innovation must not become a threat to healthy competition and innovators should not be a hindrance to other high-potential projects.

Xiao acknowledged that financial regulation plays a key role in establishing a fair market competition environment. He claims that appropriate regulatory guidelines can lower the “too big to fail” moral hazards and can help maintain financial stability.

According to Reuters, Xiao remarked:

“History tells us that before each major financial crisis … markets were irrationally exuberant. Regulation is meant to return this exuberance to rationality, and resolutely does not support continuing to push exuberance toward crazy so-called innovation.”

Xiao’s recent statements on financial innovation or Fintech-related initiatives have come after Ant Group’s planned $37 billion IPO was put on hold. Ant’s plans were halted after billionaire founder Jack Ma had criticized the approach taken by China’s regulators when overseeing financial market activities.

As reported, Ma had argued that China’s existing regulatory framework has been stifling innovation. He also recommended that new rules should be created to support the growth of Fintech initiatives and other local businesses.

As covered, Ma’s critical comments directed at public officials went viral compelling Chinese President Xi Jinping to halt the IPO. Officials are said to have enacted draft regulations that included compliance requirements that previously did not exist:

“Among them was one regulating online microlending. With Mr. Xi’s blessing, the central bank and the banking regulator made the draft rule even tougher than previously conceived, according to the Chinese officials familiar with the decision-making. The new rule had a requirement that didn’t exist in previous drafts: Firms such as Ant would need to fund at least 30% of each loan it makes in conjunction with banks. The draft rules were published on Nov. 2, the same day Mr. Ma and a couple of his executives at Ant were summoned to a rare joint meeting with the central bank and the regulatory agencies overseeing banking, insurance and securities.”

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