Reach for the cloud
With the economy of the Chinese mainland showing signs of a slowdown, it is time for Web-based finance platforms to enjoy their day in the sun. Zhou Mo reports in Shenzhen.
Internet finance is expected to play an increasingly important role in China amid the economic slowdown, but certain standards should be set up to ensure its healthy development, industry experts advise.
China’s economic growth is showing signs of slowing down. According to the National Bureau of Statistics, the Purchasing Managers Index, an indicator of manufacturing activity, remained at 49.8 in October, unchanged from September and marking the third consecutive month below 50, the dividing line between expansion and contraction.
“It is the sluggish economy that provides a large space for the development of Internet finance,” said leading Chinese economist Lang Hsien-ping. “The newly emerging industry offers an alternative source of financing for Chinese enterprises.”
Lang’s remarks came at a forum held during the Ninth China (Shenzhen) International Finance Exposition held between Nov 5 and 7.
Lang, a US-educated economist and currently emeritus professor in the Department of Finance at the Chinese University of Hong Kong, believes that Internet finance has a bright future, but warned against government intervention. “Internet finance is expected to play an important role in reviving the mainland economy. The government should give it enough space to develop freely, rather than intervene, and make necessary corrections afterwards.”
Sharing Lang’s optimism was Zhou Shiping, president of Hongling Capital, a Shenzhen-based P2P (peerto-peer) platform. Zhou expects the new finance model to expand and become a large industry worth tens of trillions of yuan in the next three to five years. “The advantages of Internet finance lie in its efficiency and low-cost nature. A combination of Internet finance and the real economy is vital amid the current period of economic transition and will bring endless vitality (to the economy),” noted Zhou.
The exponential development of Internet finance is reflected in the rapid increase in the number of P2P platforms across the country. By the end of 2014, more than 1,500 P2P platforms had been set up, with annual transaction volume amounting to more than 300 billion yuan ($47 billion), according to the Association of China Internet Financial Industry.
But the innovative financing source is also sparking widespread concerns due to its high-risk nature and lack of regulation. Reports abound about P2P operators absconding with millions of yuan because of fraud or mismanagement, leaving unfortunate investors with nowhere to claim their money from.
“The root reason for the disorder in the area is lack of standards,” pointed out Zeng Guang, secretarygeneral of the Shenzhen Internet Finance Association. “There are no specific regulations telling the operators what they can or cannot do.”
He stressed that only when certain standards are established can investors’ rights be secured and the industry achieve better, healthier and more sustainable development. For example, there should be specific rules on the kind of services Internet finance enterprises could offer, and on ways to properly promote their products as well as ensure safety of the IT system, he suggested.
“Moreover, e-finance enterprises should release relevant information on third-party platforms, like listed companies, to enable supervision by the general public,” Zeng told the forum.
The People’s Bank of China, the mainland central bank, along with nine other government departments issued a set of guidelines in July on promoting healthy development of Internet finance, which some industry insiders say points out the direction for development and lays down basic regulations for the industry.
“The guideline, while giving e-finance enterprises space for innovative development, also sets out clear requirements on what they can do, which will help Internet finance platforms achieve faster development,” media reports have quoted Li Fei, vice-president of P2P platform Yinker.com, as saying.
The increasing importance that the government attaches to the industry and the gradual improvement of enterprises themselves are helping Internet finance move toward a better situation. From June to September, the number of new P2P platforms reporting problems every month dropped by 56 percent, from 125 to 55, according to industry trackers Wangdaizhijia.com.
However, it still remains an industry full of uncertainties. As of September, 1,031 P2P platforms among 3,448, or roughly 30 percent, had reported various problems, ranging from failing to return money to individual investors due to failed investments, to P2P operators disappearing after raising huge sums of money from investors.
Lang said the future of e-finance firms depends on their operation and management. “Three elements are highly important,” he pointed out.“First, a third-party custodian should be introduced. Second, sufficient reserve funds and assurance should be ensured in case of risks. Moreover, money flow should be made transparent to the investors.”
Xing Zhiqing, deputy head of the Peking University HSBC Business School, urged Internet finance enterprises to step up innovation.
“The 13th Five-Year Plan (201620) put forward five concepts of development — innovation, coordination, greenness, openness and sharing. Innovation ranked the first. For the finance industry, innovation is particularly important,” Xing emphasized.
Promotion of financial reform requires us to focus on the innovation of Internet finance, which will then fuel innovative development of the whole industry, he said.
Xing suggested that e-finance firms make continuous innovations on four fronts — business model, management model, capital model and mental model — a strategy he dubbed “4M”. Apart from this, such firms need to make great efforts to establish their own brand, he added. “Internet finance companies should begin to build their brand from the first day of their founding.”
Xing believes a “4M plus brand” will help them attain sustainawble development in the highly competitive industry.
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Chinese University of Hong Kong Professor Lang Hsien-ping said he is confident of a bright future for e-finance but warned against government intervention in the sector.
The Ninth China (Shenzhen) International Finance Expo held from Nov 5 to 7 heard speakers emphasize the growing importance of Internet finance.