China is on a mission to regulate Fintech

China has now publicly voiced its desire to be the leading country in financial technology development and adoption. The president of the republic openly called for the promotion of blockchain technology across the nation and proceeded to block all the negative opinions about blockchain throughout the Chinese cyberspace.

But now the Chinese government and the People’s Bank of China are taking it to the next level.

The vice president of PBoC Yifei Fan spoke at the meeting of the National Technical Committee this week and voice the plan to better regulate new technologies that are applied to the financial industry. China has set out to create 17 standards for Fintech Categories, including blockchain, artificial intelligence and cloud services.

Trying to regulate financial technologies

According to Fan the Fintech industry either lacks the standards of needs to update the existing standards. Chinese authorities think that the current regulations for financial services are not clear enough and strong enough to guide high-quality developments in the industry.

The fintech is only the third industry to get hit with the new regulations. Prior to the announcements from the PBoC, China introduced two new sets of industry standards, one for registering all new blockchain projects, with 500 of them being included in the first two tranches, and the second one for 11finetch product categories fro digital payments.

Additional regulations were introduced for mobile financial payment platforms, voice and image recognition technologies as well.

The general goal of this new plan, at least according to the officials is to “guide the application of new technologies” that China has been so vocal about. The primary focus of these regulations will fall on data security, since the shortcomings of financial technologies, or what governments may consider shortcomings are the transparency and easy access to data. 

As of right now, China has 65 national financial standards and 252 financial industry standards, which include the aforementioned financial payment client technical specifications, voiceprint identification and more.

It is understandable that to develop financial technologies across the nation and become a leading force in the field more effort should be put into the industry. A mentioned in the official statement made by the bank executive, high-quality financial development requires high-quality financial standards. These financial standards than can be broken down into enhancing the process of internationalization of financial standards, actively carrying out China’s financial standardization research, cultivation of a new generation of regulators that are savvy in the field

China has set out to modernize financial governance systems and governance capabilities according to the official statements. 

The Standardization Administration of China, a standards organization authorized by the State Council of China, announced the setting up of a national standards committee for blockchain and distributed ledger technology, alongside a number of other technical committees. According to the members of the administration, the progress so far has been very orderly and added that the committee is keen to help high-tech innovation to promote high-levels of openness and lead to high-quality development.

China’s love-hate relationship with Fintech

China is still ardent on distinguishing between blockchain and cryptocurrencies, clearly favoring blockchains over the latter. China has continuously resisted adopting these financial technologies as they’ve done it in the west and judging by the statements and the new regulations China has a plan on how to mold these innovations to fit its own needs.

This is actually in line with the recent news about PBoC launching sits own cryptocurrency somewhere around the beginning of next year. That was probably a major factor in China adopting a new law on cryptocurrency and generally displaying a less strict attitude towards cryptocurrencies than it had in the past. Now an indirect subsidiary of the People’s Bank of China, Yangtze River Delta Financial Technology is actively recruiting for blockchain professionals which could mean that the new cryptocurrency expected to launch in the beginning of 2020 could be blockchain-based. The Central Bank Digital Money Research institute, formed to oversee affairs related to the Central Bank Digital Currency, has been functioning for some time now and according to the Chinese news outlets is working on the CBDC.

The information concerning this mysterious digital currency has been kept under the covers but last week, PBoC deputy director Mu Changchun said that the digital yuan will be offering its users anonymous transactions. We also know that it won’t require a linked bank account and will not bear any interest.

How China is trying to gain a “Technological edge” over the world

In a way, China is already leading the way in Fintech adoption since it’s trying to bring the technology to a more regulated space and tried to find a way to merge it with governance while not compromising on its core values and beliefs about the said governance.

China has been promoting blockchain technology, collaborating with the telecommunications giant Huawei to push the research in this field even further and has even been investing worldwide in new Fintech startups.

Just recently China invested $120 million in Africa-focused fintech startup OPay. OPay is located in Lagos and was founded by internet company Opera. OPay will use the funds to scale in Nigeria and expand its payments product to Kenya, Ghana and South Africa. Opera has actually built quite a following in Africa, ranking second only to Google Chrome in web-browser usage. The company is Norway-based but Chinese owned and has built a hefty suite of internet-based commercial products. The company will focus on everyday services such as food and transportation and will also use this money to enter more countries in Africa.

China has been investing heavily in Africa, since the beginning of this year. Up until now, China has invested around $240 million in companies like OPay, PalmPay, and East African trucking logistics company Lori Systems.

It is actually the right move for China, considering that Africa has been slowly but surely creating a name for itself as a new fintech startup hub. Some countries are more successful than others with Kenya and Nigeria leading the way but there has been a major shift in the ratio of where startups pop up and when they actually succeed. Africa has had multiple “unicorn” startups with a value of over $1 billion and the trend seems to be getting more and more serious.

China knows where to invest and where to promote innovation in order to get the best results for their money. Western countries are also looking to Africa for fresh ideas and companies to invest in. 

Can the regulations actually help?

So it seems like China is set on making all the right moves to ensure its leadership position in the world when it comes to financial technologies and innovations.

It’s interesting that China tried to approach this new technology from a different angle compared to the rest of the world. While still investing and promoting its development and adoption China also openly calls for regulations, which most financial technology services in the West seem to fear or stay away from. The reasoning behind China’s latest initiative concerning the new regulations is questionable only because there’s a chance that the government then will try to manipulate these technologies or have exclusive access to the information spread using these technologies, which will be a major drawback for some people and companies.

China has a very strict understanding of how it wants to lead its country and the little tweaks to the already functioning system seem like a continuous state of the Chinese government.

Leading the fintech revolution and promoting innovation and the “technological edge” while also holding a tight grip on it seems like a very ambitious plan. 

Chinese authorities do have a point when they speak about the large scale adoption of these technologies and how they need to be regulated, at least to some degree, it makes sense. But it holds a risk of getting out of hand too soon and giving the authorities too much control, therefore defeating the whole purpose of switching to these services in the first place. 

But China did have success stories from doing just that with Alibaba and Tencent who have now reached international success, even though their initial profit at least to some degree

came because of Chinese protectionist policies. So China knows how to spin something and make it into their own while reducing the risks of all the undesired effects. So we’ll see soon enough with the launch of the PBoC digital currency and the adoption of the blockchain technology if these regulations will actually bring success and development to the country. China is already ahead of the rest of the world when it comes to prioritizing these technologies and putting conscious effort into their development. Seems like the West might be underestimating the sheer scale of this movement in China and will probably have to wake up to a different reality soon enough if it fails to catch up.