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.

China Daily (Canada) - - HONG KONG -

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.

Con­tact the writer at sally@chi­nadai­lyhk.com

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.

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