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Digital Finance: the China Path

May 07-2020   



In a recent media interview, Prof. Huang Yiping of the NSD pushed some of the hottest buttons in China’s digital finance industry. Besides teaching economics and finance at the NSD, Prof. Huang also heads the Institute of Digital Finance at Peking University.

 

He started the interview by taking on the issue of P2P (peer to peer lending). Online P2P isn’t suited to survival in China owing to the fact that it’s regulated by the authorities as an information intermediate and that both lenders and borrowers don’t have an effective means to tackle information asymmetry, he said. At its height, the industry had over 6,000 firms and few of them have refrained from becoming a quasi-bank, taking advantage of the belated promulgation of rules and regulations.

 

Shadow banking and crossover institutions such as AliPay and MYBank are posing new challenges to the regulatory authorities. Prof. Huang drew attention to the origins of digital financing and praised it for plugging the shortfall caused by the incompetence of traditional financial institutions. He argued for striking a balance in supervision to keep tab on risks, especially systematic ones, and also to allow for innovation. Regulatory sandbox and regulatory technology are advisable.

 

Regarding the DC/EP of the Central Bank of China, Prof. Huang couldn’t see for now that it will challenge the position of the green back, although such a possibility exists provided that the DC/EP moves from M0 to cover M1 and M2 and that the RMB continues its international drive. Mobile payment, on the other hand, will take some beatings, for the DC/EP will be more convenient and legally secure than what’s offered by AliPay and Wechat Pay. The exact extent of negative impact remains to be seen.

 

The most outstanding accomplishment of China’s digital finance has been its immense role in expanding inclusive finance. According to an index by his institute, the digital finance has narrowed the gap of financial accessibility between China’s eastern and western regions by 15% since the inception of the index in 2016. Not only are people all over the country enjoying the convenience of mobile payment, but also the small and micro firms are having significantly improved access to financing service.

 

On the final note, Prof. Huang said that AI has made inroads in digital finance but is yet to catch up with the popularity of digital technology. For robot-advisors to shrug off the slow start, more investment products must be developed and more investor information must be collected.

Digital Finance: the China Path

May 07-2020   



In a recent media interview, Prof. Huang Yiping of the NSD pushed some of the hottest buttons in China’s digital finance industry. Besides teaching economics and finance at the NSD, Prof. Huang also heads the Institute of Digital Finance at Peking University.

 

He started the interview by taking on the issue of P2P (peer to peer lending). Online P2P isn’t suited to survival in China owing to the fact that it’s regulated by the authorities as an information intermediate and that both lenders and borrowers don’t have an effective means to tackle information asymmetry, he said. At its height, the industry had over 6,000 firms and few of them have refrained from becoming a quasi-bank, taking advantage of the belated promulgation of rules and regulations.

 

Shadow banking and crossover institutions such as AliPay and MYBank are posing new challenges to the regulatory authorities. Prof. Huang drew attention to the origins of digital financing and praised it for plugging the shortfall caused by the incompetence of traditional financial institutions. He argued for striking a balance in supervision to keep tab on risks, especially systematic ones, and also to allow for innovation. Regulatory sandbox and regulatory technology are advisable.

 

Regarding the DC/EP of the Central Bank of China, Prof. Huang couldn’t see for now that it will challenge the position of the green back, although such a possibility exists provided that the DC/EP moves from M0 to cover M1 and M2 and that the RMB continues its international drive. Mobile payment, on the other hand, will take some beatings, for the DC/EP will be more convenient and legally secure than what’s offered by AliPay and Wechat Pay. The exact extent of negative impact remains to be seen.

 

The most outstanding accomplishment of China’s digital finance has been its immense role in expanding inclusive finance. According to an index by his institute, the digital finance has narrowed the gap of financial accessibility between China’s eastern and western regions by 15% since the inception of the index in 2016. Not only are people all over the country enjoying the convenience of mobile payment, but also the small and micro firms are having significantly improved access to financing service.

 

On the final note, Prof. Huang said that AI has made inroads in digital finance but is yet to catch up with the popularity of digital technology. For robot-advisors to shrug off the slow start, more investment products must be developed and more investor information must be collected.