China Is Fertile Ground for Growing Internet Finance

Thursday, April 16, 2015

The recent establishment of private Internet banks has ushered the banking industry into an era where banks need no brick-and-mortar offices. Technologies like big data make this possible, yet there is disagreement over how much potential Internet finance has.

We have often heard financial experts say that it is not a big deal. Some point out that the United States does not have an extensive Internet finance network, and what China has is a phenomenon involving regulatory arbitrage that will bust like a bubble once financial regulations are tightened and improved.

Chen Long, chief strategy officer of Ant Financial Services Group, has argued that China’s future may not necessarily look like the United States of today. With its relatively young financial market and Internet technologies, China is overtaking the United States. What it could achieve tomorrow may become an American goal, he said.

The United States undoubtedly has the world’s most advanced financial system, and toughest and most rigorous regulations. Regulation is crucial to maintaining order and controlling risk, but it also hurts innovation. The reason China can take the lead in developing Internet finance is because it has the soil in which innovation in this area can grow.

First, its financial policies have long fallen short of meeting the needs of a great number of people and companies. They not only repress the cost of capital but also directly interfere in the allocation of loans. So despite the huge size of the country’s financial market and the assets in it, the only people and companies that can enjoy good services are the wealthy.

The demand for financial services of ordinary people and many small and medium-sized companies has still not been met.

Source: Caixin Online (link opens in a new window)