A New Financial Regulatory Paradigm
The central bank's recent draft of administrative measures on the online payment business of Internet finance institutions suggested a possible 1,000-yuan ($160) ceiling on a single transfer by individual payment accounts and a maximum amount of 10,000 yuan ($1,600) within a year. On March 14, the central bank suspended the payment business of virtual credit cards and two-dimension codes. All of these indicate authorities have set out to standardize Internet banking.
Just like online shopping's sudden rise, Internet finance is also flourishing at a pace beyond our imagination. In the 2014 government work report, Premier Li Keqiang stressed that the government would promote the healthy development of Internet finance. Since it is still in its infancy and has just started to produce systematic effects, efforts need to be made in standardizing and guiding its development.
In China, the integration of the traditional financial industry and the Internet is still underway. Strictly speaking, only when financial services are incorporated with Internet technologies like big data and cloud computing, can they be called Internet finance. In this sense, Internet finance has not yet come into existence in China.
Nonetheless, the extension of traditional financial services on Internet platforms has shown signs of thriving and flourishing. According to statistics, by the end of the second quarter in 2013, Alibaba's micro-credit arm had issued loans worth 100 billion yuan ($16.06 billion). In the first half of 2013, the total volume of loans issued by all micro-credit companies in the country amounted to 112.1 billion yuan ($18 billion), of which 42 billion yuan ($6.75 billion) was contributed by Alibaba.
Beyond that, online monetary funds like Alibaba's Yu'ebao have absorbed more than 500 billion yuan ($80.3 billion) since their birth in mid-2013. The number of peer-to-peer (P2P) lending platforms also grew from 9 in 2009 to over 130 in 2013 with mushrooming transaction value. According to a study by the World Bank, there is huge potential in China's crowdfunding business, which is likely to swell to $50 billion in 2025. In addition, statistics from the China's central bank suggested that the number of Internet payments amounted to 15.34 billion with a total transaction value of 9.22 trillion yuan ($1.48 trillion), up 56.06 percent and 48.57 percent, respectively.
In a broad sense, Internet finance has begun to exert a systematic influence on the financial sector. Firstly, the online sales of monetary funds have dealt a heavy blow to the capital distribution pattern of the banking system by substantially lifting its financing cost and undermining the stable growth of deposits.
Secondly, the conception of wealth management has been renovated and refreshed. Money management used to be exclusive to high-income groups. Yet, Internet finance now has remarkably lowered its threshold and has started to benefit people from all walks of life.
Thirdly, traditional payment has begun to fade from people's lives. Statistics from iResearch Consulting Group, a leading market research firm focusing on China's Internet industry, show that the value of Internet retail sales reached 1.3 trillion yuan ($208.78 billion) in 2012, 67 times as much as that in 2005, registering a compound annual growth rate of more than 80 percent. As online retail sales continue to surge, Internet payment will restructure China's overall payment system.
Fourthly, changes are taking place in traditional financial services. The traditional financial industry has increasingly employed technologies like big data and cloud computing to lower operation costs, enhance competitiveness and improve risk management, as well as identify and discover potential risks.
While encouraging the development of Internet finance, the financial industry needs to undergo an overhaul and take the initiative to handle potential systematic risks. Nobody could have predicted that Yu'ebao would wield such a huge power when it debuted last June. Now that Internet companies' interest in the financial market has been sparked, authorities should pay special attention to the potential risks arising from lack of transparency, fraud and money laundering.
Moreover, efforts should be made in further protecting consumers' rights and interests in the consumption of Internet finance products and services.
This is an edited excerpt of an article by Xiang Zheng, a financial commentator, published in Securities Times
3.2 mln units
The number of new automobiles on China's roads in January and February
The number of enterprises registered in China in the first two weeks since the launch of a new corporate registered capital system on March 1
Foreign direct investment into the Chinese mainland in January and February, with a year-on-year increase of 10.44 percent
The number of mergers and acquisitions in the real estate market in 2013, with a year-on-year increase of 48 percent
Year-on-year decrease of China's outward direct investment in January and February, which totaled $11.5 billion
Profit growth of China Telecom, one of the country's three major telecom operators, in 2013
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