Financial regulators in China, including the nation’s reserve bank, and the Zhejiang provincial government are reportedly supporting “controllable risks” in the country’s digital commerce hub in order to promote Fintech innovation.
This, according to a government update reviewed by the SCMP.
The People’s Bank of China (PBoC) noted that the tech innovation capability of financial services needs to be enhanced. The central bank pointed out that “under the premise of controllable risks and voluntariness,” banking institutions in China have been “encouraged to deepen cooperation with external investment institutions.” They have also been asked to “explore diversified financial service models for scientific and technological innovation.”
As reported by the SCMP, the draft comes only 8 months after Zhejiang, currently home to digital commerce service provider, Alibaba Group Holding and its Fintech division, Ant Group, started to work cooperatively on a “common prosperity” pilot zone. This is being done to work towards Chinese President Xi Jinping’s focus on supporting improved wealth distribution.
It’s worth noting that Alibaba owns the South China Morning Post.
The comments indicating a considerable appetite for risk appear to be somewhat of a departure from the earlier stance that regulatory authorities had taken against giant tech companies since November 2020. As covered, this was when the Ant Group’s planned (at that time) $35 billion IPO had been cancelled just a few days before its official listing.
The following month, the PBoC stated that it would be curbing what it described as the “irrational expansion of capital.” During all of last year, Chinese technology sector participants had been hit hard with extensive crackdowns which had gone after dominating monopolistic practices in digital commerce, off-campus tutoring, video games, data and cybersecurity issues and digital currency mining.
Fintech has consistently been a target of interest for Chinese regulators due to concerns regarding the tech firms’ potential impact on financial stability.
In statements shared with the SCMP, Grace Wu from Fitch Ratings had noted that Chinese Fintech businesses have (in certain cases) become so large that their collaborations with banking institutions are “increasing contagion risks in China’s financial system.”
Since that time, the biggest Fintech market has now been forced to reevaluate its stance, as it pertains to the emerging role of financial innovation in mainland China and its potential impact on financial security.
While there have been major crackdowns and much greater scrutiny, mobile payments have still been surging across the country. The Fintech sector, being mostly dominated by Tencent Holdings-owned WeChat Pay and Ant’s Alipay, reported almost $20 trillion in transfers during Q3 2021 (according to the latest figures from the reserve bank).
As the Chinese government now begins to refocus its efforts to support economic growth, with Vice-Premiere Liu He noting that the government would “actively release policies favorable to markets”, the wording in the latest Fintech update is quite reserved.
The update clarifies that “financial opening-up and innovation need to be driven steadily under the premise of effective regulation and controllable risks.”
Chinese financial institutions must “fully utilize the synergy with their subsidiaries to provide continuous financial support for science and technology enterprises,” the update noted.
The document also encourages innovation in IP insurance and improved coverage of tech-related insurance services in the country.
The Chinese government is also considering whether it should support the sector with special agencies for technology innovation and ensuring social responsibility. This, according to the Assets Supervision and Administration Commission of the State Council.
The new government agencies should assist with “centralizing mindsets … when driving innovation,” the update clarified.
The measures carried out in Zhejiang’s pilot are set to be introduced across China once they have shown to be effective. Examples are expected to be established for other area “to roll out step by step so that common prosperity for all people can be achieved gradually,” a representative of the National Development and Reform Commission had previously confirmed.
