Fintech in China: Discovering one of the most advanced countries in the sector
In past articles we focused on developing countries, however, this time we will focus on one of the most advanced countries in the world: China. Since 1978, when China began to open up and reform its economy, GDP growth has averaged almost 10 percent a year, and more than 850 million people have been lifted out of poverty. This made possible for China to become the second largest economy in the world, behind the U.S.A.
However, their per capita income is still only a quarter of that of high-income countries, and about 373 million Chinese live below the upper-middle-income poverty line of US $ 5.50 a day. Income inequality has improved in recent years, but is still relatively high (World Bank, 2020).
In China, more than 98.64% of all firms are small businesses with 300 or fewer employees, contributing to over 60% of total GDP, 50% of tax income, 75% of job creation and 68% of exports. (OECD iLibrary, 2020). Moreover, 58% of them are financially constrained according to the MSME Finance Gap 2017 The size of the finance gap is 17% of GDP. Digital and mobile banking opened new opportunities for affordable finance for China’s entrepreneurs by decreasing transaction cost of making a loan (Smefinanceforum, 2018)
Fintech in China
China is one of the most advanced countries in the Fintech sector in Asia and the biggest driving force behind Fintech adoption is the ubiquity of smartphones in China, where roughly one in two of the 1.6 billion mobile phones in the world’s largest communications market is a device capable of data and services from the Internet. Other important contributing factors include steadily growing revenues and the still significant scope to expand access to credit, wealth management, and insurance products. In fact, China is poised to become the first cashless society (SCMP Research, 2020).
According to Mordor Intelligence (2020), 2C mode of credit witnesses the highest proportion of Fintech companies, followed by consumer finance and third party payment. These three segments sum up to around 77.08% of the total number of fintechs in the financial services sector.
Lending Fintech
According to Bloomberg (2021) China consumer loans climbed to a record 49 trillion yuan ($7.6 trillion) in November, stoked by a housing boom and ready access to credit. However, Chinese Regulators have been a constant challenge for the p2p lending companies. In fact, In November 2019, the Chinese regulator issued a strict new series of compliance rules for existing P2P firms. It planned to turn compliant firms into small-time loan providers within two years. P2P firms needed to meet a capital requirement of $7.1 million to turn into a regional small loan company. Larger firms needed $142 million to become a small loan lender qualified to operate nationally. (Fintech Future, 2020). Thus, because of the higher control in lending Fintech due to the rise of fraudulent business models in market loans, fintechs are shifting to Insurtech, Regtech, and other B2B models rather than settling in the B2C arena
China’s advancement in Fintech is really impressive; however, we can see that even the most advanced nations still have problems regulating this new type of business. Also, we can see that even in a nation like China, SMEs struggle to find enough ways of financing. Therefore Fintech Lending can be a great opportunity to change this.
