Last year, when the coronavirus disrupted the Chinese economy, Lao Young needed cash to get over his online handicraft business. But he was afraid of the idea of spending a long and boring time in the bank.
The outbreak disrupted delivery services and slowed customer payments, so 33-year-old Rao used an app called Alipay to receive early payments for invoices. His Alipay account was already associated with the digital storefront of Alibaba Taobao Bazaar, so getting the money was quick and easy.
Alipay helped Rao a few years ago. His business was just starting to grow and he needed $ 50,000 to build a supply chain.
He said they would have ignored me if I had gone to the bank at that time.
China was a pioneer in coming up with novel ways to make money for poorly serviced people like Mr. Lao. Alipays owner Ant Group, a technology company like Alibaba’s spin-off, has turned finance into a kind of digital plumbing. It was almost unthinkable because it is so thoroughly and invisiblely embedded in people’s lives. And they did it on a huge scale, turning tech giants into influential lenders and money managers in a country where smartphones were prevalent in front of credit cards.
But for most of the past year, Beijing has created new regulatory barriers around so-called fintech, or financial technology, as part of its expansion efforts to curb the country’s Internet industry.
The campaign trapped Alibaba, which was fined $ 2.8 billion in April for its exclusive actions. Just days after listing on Wall Street last month, he stumbled upon Didi, a ride-hailing service giant, who was hit by an official investigation into data security practices.
At this time last year, Ant was also preparing for the world’s largest initial public offering. IPOs never happened, and Ant is reviewing its business today, so regulators can treat it as they believe it. It is a financial institution, not a technology company.
Zhiguo He, a Chinese financial researcher at the University of Chicago, says FinTech has grown so much in China because of lack of regulation. It’s very clear.
Now, the question is what does regulation do for industries that thrive just because they provided services that China’s state-owned banking system couldn’t provide?
China’s investment in fintech has declined in recent years as Ant and other large platforms dominate the market. Therefore, Ali’s punishment could make this sector more competitive for start-ups. But if running a large fintech company means being regulated like a bank, are future Ant founders even more concerned?
He said he was almost certain that Chinese fintech entrepreneurs would continue to take on the challenge. He said it was another matter whether there was such a huge profit.
For most of the last decade, if you wanted to see where smartphone technology makes China look the most different from the rest of the world, you would have looked into people’s wallets. Or rather, an app that has replaced them.
Rich and poor alike used Alipay and Tencents’ WeChat messaging app to buy snacks from street vendors, pay bills, and pay friends. State media praised Alipay as one of China’s four outstanding modern inventions, offering bicycle sharing, e-commerce, and high-speed rail with Alipay in compass, gunpowder, papermaking, and printing.
However, tech companies did not enter the financial business to make it easier to pay for coffee. They wanted where the real money was: credit and loan expansion, investment management, insurance provision. And with all the data about people’s spending, they believed they were far better at handling risk than traditional financial institutions.
With the blessings of Chinese leaders, the financial sector has begun to sprout from Internet companies of all kinds, including search engine Baidu, retailer JD.com, and food delivery giant Meituan. Between 2014 and 2019, consumer credit from online lenders, on average, nearly quadrupled each year, with one estimate. According to iiMedia Research, nearly three-quarters of these platform users were under the age of 35.
When Ant applied for publication last year, the company said more than $ 260 billion in credit was being offered to Alipay consumers. According to research firm Gave Kal Dragonomics, this means that only Ant was responsible for more than 12% of all short-term consumer loans in China.
Then, in November, authorities fired an Ants IPO with a torpedo and set about disassembling the plumbing that connected Alipay to a Chinese bank.
They ordered Ant to make it inconvenient for users to pay for purchases with credit credits, which were primarily funded by banks. They banned banks from offering deposits through online platforms and limited the amount banks could lend through them. At some banks, deposits provided through digital platforms make up 70% of total deposits, a central bank official said in a speech.
At a press conference last week, central bank vice-president Van Ifay said regulators will soon apply full Ant processing to other platforms.
On the other hand, the speed of development was amazing, Mr. Huang said. On the other hand, in pursuit of growth, monopolies and disorderly capital expansion are occurring.
Ant declined to comment.
Ant and Tencent are scrambling to meet regulatory demands, reducing credit services for some users.
One of the big blows to Ants’ earnings could come from the new requirement to invest more self-financing for loans. Chinese regulators have long hated the idea that Alipays competes with banks. As a result, Ant instead acted as a bank partner and used the technology to find and evaluate borrowers while the bank was betting on funds.
But now that model looks like Beijing as a convenient way for Ant to place bets without being exposed to downside risk.
If something goes wrong, it’s safe, but its partner banks will be hit, said Xiaoxi Zhang, a Beijing analyst at Gave Kal Dragonomics.
When Chinese regulators think about such risks, they have people like Zhou Weiquan in mind.
21-year-old Zhou earns about $ 600 a month from his desk job and wears his hair on a plunging red-brown mullet. After he turned 18, Alipay and other apps began offering him thousands of dollars a month in credit. He made the most of it, without thinking about traveling, buying gadgets, and generally how much he spent.
After Alipay lowered its credit limit in April, his first reaction was to call customer service in a panicked state. But he says he has since learned how to live within his own means.
This is good for young people who really love overspending, Zhou said about the crackdown.
China’s recent booming economic growth is likely to allow authorities to become accustomed to fintech restraints, at the expense of innovation and personal spending and borrowing.
Peking University’s professor of finance, Michael Pettis, said increasing household debt is probably not a good idea given that household debt as a percentage of household income is currently the highest in the world in China.
A few years ago, 52-year-old Qu Chaoqun was thrilled to have access to $ 30,000 a month in several apps. But he wanted more. He started buying lottery tickets.
Soon, Qu, a takeaway delivery driver in a big city in Guangzhou, rented one app and billed another. He borrowed from friends and relatives to repay the app, then borrowed the app to repay to friends and relatives.
When his credit was cut in almost half in April, he struggled to pay his unpaid debt and fell into what he called a bottomless abyss.
People inevitably have psychological fluctuations and urges that can cause great harm and instability to themselves, their families, and even society, Ku said.
Albee Zhang contributed to the research.
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