China’s central bank said that it plans to gradually develop a system of rules to regulate financial technology (fintech) and will fully utilise the technology to optimise the flow of credit and reduce financing costs for businesses.

In a statement on its website, the People’s Bank of China (PBOC) also said it would enhance the application of new technologies in regulation and improve the scope for preventing risks.

It’s not the first time the sector has come under the central bank’s scrutiny. In June 2017, the PBOC said that it had recently set up a fintech committee and planned to adopt artificial intelligence (AI) to better monitor fintech players and meet their expanding missions.

Risky proposition

China has become an emerging fintech market thanks to a growing middle class, rapid digitisation and electronic payments adoption. The country has also recently seen rapid growth in companies using the tech to attract the country’s millions of previously unbanked consumers.

Although the technology employed is adequate, the financial services themselves being offered concern the president of Chinese financial investment platform Phoenix Finance, Vince Zhang, who spoke at last year’s East Tech West conference in China.

Zhang said that many fintech firms lack the controls to make them safe investments for both individual consumers and China’s economy as a whole. “A lot of companies are not [there] in terms of their business plan, in terms of their risk management process, in terms of their overall management,” he commented “A lot of these corporate control mechanisms are not in place.

“Without proper risk control mechanism personnel, without proper ways of communicating with regulation, it’s potentially becoming a very big risk going forward,” he added. “I would predict in 2019, the government will regulate more. There will be less and less players in this field.”

Also during 2018,BlackRock's co-founder, Robert Kapito, said that the increase in Chinese tech companies offering financial services could leave existing Western firms struggling to compete.

“This is a story that I do not think ends very well,” Kapito predicted. “Apple was not in the music industry, Google was not in the mobile phone industry and Amazon was not in the groceries business — until they were. Tech companies are going to enter the financial services market in a very, very aggressive way.”