Date
16 August 2017
Chinese Premier Li Keqiang has outlined his aim to expand the financing channels for small businesses and the rural sector, while strengthening the regulatory oversight. Photo: Bloomberg
Chinese Premier Li Keqiang has outlined his aim to expand the financing channels for small businesses and the rural sector, while strengthening the regulatory oversight. Photo: Bloomberg

China needs tighter regulation on internet finance

Following a State Council meeting last November, Chinese Premier Li Keqiang announced a pilot scheme of equity crowd-funding in a bid to enhance financing services for small-and-micro firms and the rural sector, including agriculture.

The initiative indicates top-level support for crowd-funding and also hints at Beijing’s keenness to regulate the sector.

Part of the control in the financial business has switched from state-owned financial institutions and professional organizations into the public hands, which weakens the risk-aversion capability. Any meltdown in online financing platforms might trigger strong social turmoil.

Over the past year, there have been four main developments with regard to internet finance policy and regulatory oversight.

The Chinese central bank has issued a series of circulars on payment caps on third-party transactions to stem potential liquidity and other risks involving both individuals and institutions.

As of June 2014, there were 1,263 peer-to-peer (P2P) lending platforms in China, and their transaction value reached almost 100 billion yuan within the first half of the year, according to data from the Internet Society of China.

The P2P sector has the largest risk exposure in internet finance industry. Officials of the China Banking Regulatory Commission, the nation’s top banking regulator, have outlined the principles, guidelines and bottom line for regulating the sector.

And a key part of the oversight is real-name registration, which is aimed at preventing money laundering, financial fraud and other criminal activities. Authorities are likely to unveil some regulations within this year.

Meanwhile, regulators have banned local financial institutions from dealing in bit coins, which Beijing said is a virtual commodity instead of a currency and cut off its links with the financial system.

In December, the China Insurance Regulatory Commission unveiled the regulatory guidelines for internet insurance for the first time. And the insurance regulator has outlined the entry threshold, business scope and technology safety for those who intend to sell insurance products online.

Chinese regulators have already taken action to stem potential risk from internet finance industry, and traditional financial institutions, internet companies and the public should also be wary of potential risks and set up risk management mechanisms as soon as possible.

The essence of internet finance is to offer financial services through online platforms. There are enormous business opportunities as well as huge risks. The staggering rise of the sector has posed great challenge for existing financial regulation.

Regulators have tried to catch up, with a series of policies released last year. And more policies and regulations are set to come this year. The internet finance sector has to be put under efficient supervision and prudent operation in order to create wealth and improve public well-being.

This article appeared in the Hong Kong Economic Journal on Feb. 27.

Translation by Julie Zhu

– Contact us at [email protected]

JZ/JP/RC

Honorary Chairman of the Chinese Financial Association of Hong Kong; Chief Executive Officer of China Everbright Limited

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