After Ant’s IPO, China is stressing the necessity for fintech regulation

People walk past the headquarters of People’s Bank of China (PBOC), the central bank, in Beijing, China on September 28, 2018.

Jason Lee | Reuters

BEIJING – Just days after the Ant Group suddenly suspended its IPO, which was supposed to be the world’s largest offering, Chinese financial authorities stressed the need for adequate regulation.

However, they haven’t stopped companies from partnering with Ant – a subsidiary of Alibaba that operates one of the two most important mobile payment systems in the country, Alipay, and operates many subsidiaries for technology-driven business credit and personal investment. Ant also has many partnerships with major banks and financial institutions.

The Ant Group’s dual listing in Shanghai and Hong Kong was originally scheduled for Thursday, but was canceled just two days earlier.

“At the same time, we hope (with respect to) Ant Group as a large privately held company that everyone can jointly maintain and conduct cooperative business in accordance with the rules and regulations,” said Liang Tao, vice chairman of the China Banking and Insurance Commission. That comes from a CNBC translation of his Mandarin remarks.

As mobile payments and online banking emerged in China over the years, Liang said the commission issued relevant licenses to the financial industry, taking consumer interests into account.

At a meeting in late October, China’s Financial Stability Committee stated that financial technology must develop rapidly and that the relationship between financial development, stability and security must be well managed.

On Monday, the China Securities Regulatory Commission announced that Ant Group controller Jack Ma, chairman Eric Jing and CEO Simon Hu of the People’s Bank of China (PBOC), the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission were summoned and interviewed and the state administration for foreign exchange.

Also on Monday, regulators issued draft regulations to raise standards for online lending and limit the amount available for borrowing.

The next day, the Shanghai Stock Exchange suspended Ant’s IPO, citing the meeting and a change in the financial regulatory environment.

PBOC Deputy Governor Liu Guoqiang told reporters on Friday that the Shanghai Stock Exchange’s decision was made out of consideration for the interests of consumers and the protection of investors, in order to ensure healthy and stable development over the long term and in accordance with the law of the financial market.

He also promised that the central bank “will continue to exercise statutory financial oversight, in line with the idea of ​​regulating development and promoting innovation.” Liu said there must be equal financial innovation, protection of the economy and prevention of systemic financial risk.

The two officials spoke at a press conference about efforts to improve financial system support to business and economic growth in China. They did not specifically comment on Ma’s controversial speech last month which appeared to criticize regulators.

The role of fintech in a state-dominated system

China’s state-dominated banking sector has preferred to lend to state-owned companies rather than privately owned companies. The argument is that the private and much smaller companies have no evidence of their ability to repay a loan in an environment without a standard credit score system.

Smaller firms have turned to other sources, including the off-balance sheet shadow banking sector, which refers to the activities of financial firms outside the formal banking sector and may be subject to less oversight.

More recently, big data analytics from companies like Ant and working with banks have helped to better qualify companies’ ability to borrow.

At the end of June, Chinese commercial banks’ consumer credit balances from technology firms stood at 1.43 trillion yuan ($ 216.08 billion), according to the PBOC.

Chinese authorities stepped up efforts to improve lending to privately owned smaller businesses following the coronavirus pandemic this year. PBOC’s Liu said measures like lowering fees and postponing debt repayment have released 1.25 trillion yuan into the economy as of October, close to the 1.5 trillion yuan target for the year.

Chinese regulation can initially be far looser than other countries, allowing an industry to grow rampant before cracking down on it. One example is the peer-to-peer lending industry, where many companies took money from investors claiming they were using technology to connect consumers to credit or high yield investment products before they collapsed and regulators stepped in.

Speaking at the press conference on Friday, Liu Fushou, chief counsel of China’s Banking and Insurance Regulatory Authority, said the number of operational peer-to-peer lending firms had fallen from a high of around 5,000 companies to the current three lenders he did not name. The size of loans and people participating has been going down for 28 straight months – or two years and four months, he added.

“On the one hand, we support sensible innovations in the financial sector, provided that risks can be controlled,” said Liu from the banking commission. “At the same time, we claim that innovation serves the real economy and must contribute to it.”

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