17 February 2020

Banks vs online financiers: War or peace

A few minutes of Premier Li Keqiang’s work report on Wednesday probably did more to excite China’s internet economy than all the preceding months or years of online chatter.

In one fell swoop, Li outlined a broadband strategy, pushed e-commerce development and laid a plan to build related infrastructure.

Days after the speech, the halls of the National People’s Congress in Beijing still resonate with Li’s message. Social media and the rest of the country’s online community are on fire.

That can only mean one thing: Positive sentiment will continue to wash over the internet economy and the country’s digital future looks brighter than ever.

Li said the government will speed up 4G development and build 100-megabit fiber-optic networks in cities. Villages will have broadband connectivity to start with.

The aim is to ramp up e-commerce as part of a broader plan to spur domestic consumption which in turn will help produce sustainable economic growth.

In addition, Li pledged to invest in logistics infrastructure to quicken the growth of online shopping. This is the first time the government has officially anointed the internet economy as a catalyst for domestic demand.

In fact, the internet economy has been part of daily life in the mainland.

Lives are being transformed simply by increased access to credit or investment through online channels, reducing people’s dependence on traditional banks for such services.

Alibaba’s Yu’E Bao, an internet financial product that has attracted hundreds of billions of yuan of funds, easily comes to mind.

Early adopters among traditional industries such as retail, property development and agriculture are benefiting from an increasingly connected marketplace. Laggards are coming to realize that they must innovate or die.

Xiaomi founder Lei Jun, perhaps best known for the smartphone that bears the company name, weighed in on the new internet policy with more insight than most people.

A deputy to the ongoing National People’s Congress in Beijing, Lei told his fellow legislators that China is doing the right thing by leveraging the internet to drive the modernization of traditional industries. This is in line with efforts to upgrade the industrial sector.

Xiaomi has a successful track record of online sales for its smartphones. Lei may be thinking of taking the Xiaomi model a step further by going into the emerging online-to-offline (O2O) market, tapping the traditional brick-and-mortar sector to increase traffic in his internet sales channel.

He won’t be the first, to be sure.

Some major players have been in the game for different lengths of time. Online shops such as Alibaba Group Holding’s TMall and, as well as have been around the block.

Suning (002024.CN) is working to integrate its online store and physical retail outlets and open its e-commerce platform to other retailers to sell their own goods.

But nothing stirs social media these days quite like a potential war — or peace — between internet financing companies and traditional banks. In the absence of regulations, online financing companies can do business to their heart’s content while traditional lenders, which are subject to stringent rules, can only watch with envy.

That is because internet finance products have been draining money from bank deposits. The People’s Bank of China is considering a regulatory regime that will ensure the healthy growth of traditional lending and online financing.

The market is waiting to see how this spectator sport will play out. For the beleaguered banks, it’s beginning to sound a lot like the old adage: “If you can’t beat them, join them.”

– Contact us at [email protected]



EJ Insight writer