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China economy
BusinessBanking & Finance

China’s financial regulators fret about fintech’s power, and its risks to financial security. Here’s why

  • China is the largest market for Big Tech credit worldwide, followed by Japan and South Korea
  • Big Tech lending hit US$516 billion in China by the end of last year

Reading Time:6 minutes
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Make-up saleswomen use live-streaming marketing to boost sales during China’s annual November online shopping spree. Many consumers bought products they could not afford on credit. Photo: Xinhua
Alison Tudor-AckroydandEnoch Yiu

Part three in a series on the future of China’s fintech industry, looking at the risks that prompted regulators to clamp down on lending. Earlier parts of the series are here and here.

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Over 11 days last month, China’s consumers set their 12th record for online shopping, buying 1.77 trillion yuan (US$270 billion) worth of merchandise, almost the size of South Africa’s annual economic output.
For the 800 million customers who shopped in November 2020 – like the alias Softwind who spent 5,000 yuan on clothes – credit was readily on tap, with big data and artificial intelligence helping to assess, approve and process loan applications in split seconds. Supported by a world-beating logistics network, the journey from e-shop to customer is so effortless that Alibaba Group Holding’s annual sale has been the planet’s largest online shopping bonanza, bigger than Black Friday and Cyber Monday combined, for several years.
Technology-enabled financial services, or fintech, has grown exponentially in China in less than a decade, as the world’s largest population eagerly embraces every new smartphone application that promises convenience. The explosion in consumer credit – and how regulators rein in emerging risks – is a lesson for the rest of the world, especially for Japan, South Korea, Southeast Asia and Africa where fintech credit is also growing fast.

“This huge, explosive innovation has gone far faster in a few years than what regulation and supervisory capacity can run,” said Agustin Carstens, general manager of the Bank of International Settlements (BIS), the Swiss-based monetary authority for global central banks, during a recent conference.

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Shoppers visit a popular retail district in Beijing during the annual shopping festival in November, known as Singles’ Day. Photo: AP
Shoppers visit a popular retail district in Beijing during the annual shopping festival in November, known as Singles’ Day. Photo: AP

Online payment is the foundation of China’s fintech phenomenon, as customers leapfrogged credit cards and bank cheques straight to transactions via 900 million smartphones. By 2018, China’s fintech companies processed the equivalent of 38 per cent of China’s economic output in online payments.

SCMP Series
Redefining fintech
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