FinTech: Top Chinese Regulatory Watchdog Airs Fintech Concerns

December 2, 2020 | FinTech, News, Regulations

Fintech giants in China are likely to face more stringent regulatory measures, writes Guo Shuqing, Chairman, China Banking and Insurance Regulatory Commission (CBIRC)

In an article in a newly released book from the central government explaining the country’s economic priorities and development plan for 2035, Guo warned of a disturbance in global financial markets if the United States stepped up its strategic containment and rivalry with China.

Given this circumstance, China is taking steps to address financial vulnerabilities that could stem from fintech giants such as the Ant Group. (South China Morning Post)

Heightened supervision

Guo wrote that China intended to put its financial markets under supervision. It also would impose stricter regulatory compliance on large financial organizations, and in general, counter the risks across markets and countries.

He commented that China now led the world in mobile payments, lending, and Internet insurance sales. This was achieved through its relentless technological innovation.

However, these technological advances had now created new challenges for the country’s financial regulators, because online loan companies had skirted rules under the guise of “financial innovation.”

Meanwhile, “there are no regulations or risk supervision practices [for China] to learn from,” Guo admitted.

In the circumstances, China would adopt “special and innovative” regulatory safeguards for fintech firms. However, these approaches would balance growth and development and at the same time prevent the creation of monopolies. They would use the principles of “tolerance and prudence.”

Ant Group

Though Guo did not specify any names, the Ant Group immediately comes to mind. The fintech had to suspend its massive $35 billion IPO in the face of abrupt regulatory changes. Reportedly, these emanated from the very top of China’s political hierarchy.

The regulatory powers-that-be are said to have been offended by Jack Ma’s remarks in October at a Shanghai forum. He heavily criticized Chinese regulatory authorities and banks. Ma compared the Basel capital rules to a club for the elderly.

The new regulations require increased capital to be infused into fintechs such as the Ant Group.

According to Bloomberg, Guo rebuked Jack Ma, writing that the core part of the global Basel Accord was to use capital requirements as a means to constrain lending and rein in leverage within safe limits.

“Without adequate capital, financial services will get into trouble sooner or later,” he wrote.

Real estate bubbles

Guo Shuqing also warned of excessive exposure to real estate property loans by Chinese banks. He labeled it the “biggest grey rhino risk” to the stability of the country’s financial system.

Property-related loans constituted as much as 39% of all bank lending in China, he pointed out.

He said the country needed to take steps to avoid real estate bubbles because “among the 130 financial crises since the start of the 20th century, more than 100 of them are related to property markets.”

Related Story: Of Jack Ma’s Foot-in-Mouth, Irate Chinese Regulators, And A Non-Starter $37B IPO

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