As China Tightens on Fintech, Investment Focus Shifts Global

Yuan Rmb Money Chinese Currency Renbinbi Bank Note

China continues to establish its dominance over the financial technologies that have cropped up in-country.

By regulating its own cryptocurrency exchange and restricting micro-loans to state-backed enterprises, the country is looking to protect and reign in unregulated activity. In turn, its entrepreneurs shift to a more global focus.

News last week that China had instructed regional governments to stop issuing approvals for online micro-lenders saw the New York shares of micro-lending firms like Qudian and PPDAI drop. But the government isn’t just halting future licenses. According to the People’s Daily-owned International Financial News, the country plans to eliminate many of  the 150+ online micro-lenders entirely,  leaving only giant internet firms and large state-owned companies licensed.

Similarly, while ICOs have been banned and most cryptocurrency exchanges have been shut down, people knowledgeable about blockchain and cryptocurrency activity in the mainland are adamant that research and development in the space has by no means stalled.

Isa Yu, founder and CMO of fintech Moeda, speaking on a panel in New York earlier this month discussing blockchain in China, said blockchain research has been ongoing in-country for the last three years and over 100 blockchain startups currently work out of special sandboxes set up by the Chinese government.

“I think China wants to be a leader in this industry,” Yu said. “They definitely do not want to be left behind.”

“I agree,” Jeffrey Rinde, a managing partner at CKR Law, said. “I think China has a desire to change its reputation from being a global imitator to a global innovator, and this opportunity is simply too big for them to stand on the sidelines.”

While China might not want to be left behind, it is tightening up its financial technology sector, especially in light of the country’s increased combined debt.

Bloomberg reports that China’s debt has ballooned this year to around 260 percent of the economy’s size, up from 162 percent in 2008. This has been largely due to the explosion of investment in profitable yet risky wealth management products.

In April, President Xi Jinping chaired a gathering to discuss “safeguarding national financial-market security” the day after Shanghai-traded shares took their worst losses this year, according to Bloomberg.

“Governments fear that tokens offer a backdoor to circumvent their authority on currency control and regulation,” Los Angeles-based attorney Katrina Arden for the Blockchain Law Group told Forbes.

In China, only one cryptocurrency exchange is currently in operation: ZB.com. Combined with their restrictions on micro-loans, private activity is pushing investment beyond the mainland’s borders.

After the initial ICO ban, Yu explained that a lot of exchanges and companies behind ICOs registered and opened branches overseas.

While the outlook for the numerous mainland micro-lenders looks bleak following last week’s micro-lending crackdown, WeLab, a Hong Kong-based unicorn fintech focused on supplying micro-loans to consumers typically unable to access lines of credit via traditional financial institutions, is moving closer to an IPO as they prepare to make a push into Southeast Asia.

Cadence is a fintech reporter and writer at Fintech Unltd, where she covers the changing landscape of financial technologies. Previously, Cadence interned at Psychology Today, Business Insider and the Wisconsin State Journal. Cadence is interested in how science and technology intersect with power and culture and is curious about the world we are creating for tomorrow, consciously or not. She graduated from the University of Wisconsin–Madison in 2017 with degrees in Journalism and Chinese. Send tips and story ideas to Cadence at [email protected] You can also follow her on Twitter @cadencebambenek.