From ubiquitous mobile payments and online insurance to carbon neutrality and rural revitalisation, China’s 2022-2025 Fintech Development Plan has some very lofty ambitions. Qian Zhou from China Briefing reviews the main contents of the new fintech plan
The People’s Bank of China (PBOC) recently released its Fintech Development Plan for 2022-2025, which seeks to further develop China’s fintech sector and drive the digital transformation of finance in the country over the next four years. The new plan emphasises ‘building momentum’ on the basis of ‘accumulation’ to boost the sector’s progress by 2025. The new fintech development plan is based on China’s 14th Five Year Plan, a roadmap for China’s social and economic development in the period between 2021 and 2025.
The term fintech includes a variety of technology-enabled financial activities, such as mobile payments, digital banking and online insurance. Moreover, fintech also includes the development and use of cryptocurrency, although this aspect of fintech is banned in China.
This article reviews the development of fintech in China, outlines the country’s strategies and main tasks for the fintech sector in 2022-2025, and takes a closer look at the key points of the new fintech development plan.
The history of fintech in China
In China, the development of fintech can be divided into three stages:
- Finance computerising stage (1993—2004): The PBOC and other financial institutions began to digitise their back offices and services. Typical applications include ATM, POS, bank’s core transaction system, credit system, clearing system, etc.
- Internet finance stage (2004—2016): Financial institutions or Internet companies started to build online platforms, gather users, and use mobile internet technology to transform traditional financial services. The asset end, transaction end, payment end, and capital end of finance are connected by technology into the same network. During this stage, some fintech elements such as online securities account opening, online banking systems, P2P lending, and mobile payments were expanded rapidly.
- Fintech stage (2016—present): Unlike the Internet finance stage, fintech is broader in scope. In addition to Internet technology, more emerging technologies, such as big data, cloud computing, artificial intelligence and blockchain are merged into the field of financial business to change or create new financial products or services, lower transaction costs, and improve operational efficiency. Representative applications include big data credit investigation, intelligent investment, and supply chain finance.
Today, fintech is a major part of public life in China. According to the Ernst & Young Fintech Adoption Index, the adoption rate of consumer fintech in China reached 87% in 2019, meaning that 87% of China’s digitally active population use at least one fintech service in their daily life. For anyone who has spent time in China and experienced the ubiquity of WeChat/Alipay, this will come as no surprise. The adoption rate is expected to grow as fintech becomes more accessible to rural populations.
What are the goals of the Fintech Development Plan?
China wants to have a ‘digitalised, intelligent, green and fair’ fintech sector that can give strong support to the implementation of strategies such as innovation-driven development, digital economy, rural revitalisation and carbon peak and carbon neutrality.
As with all Chinese government plans, it is worth reading beyond the jargon to find out what the plan actually means.
Enhancing regulatory supervision
After a long period of being hands-off in their regulatory approach, the Chinese government is now paying close attention to the balance between fintech innovation and regulation. It still wants the fintech market to grow but in a regulated way instead of unchecked expansion.
In 2020, China started to scrutinise the internet finance industry, suspending Ant Group’s US$37 billion IPO. In 2021, China launched a broader anti-monopoly campaign against tech giants and intensified supervision of data collection as well as privacy protection in the fintech domain. The country’s leading fintech players, including Ant Group, Tencent and Didi, were all hit by fines and increased regulatory scrutiny.
Privacy and data protection
Privacy and data protection – which dominated China’s regulatory landscape in 2021 – is also highlighted in the Fintech Development Plan for 2022-2025. The plan indicates that China will make a series of supporting regulations and policies to implement relevant provisions of the Cybersecurity Law, the Data Security Law (DSL) and the Personal Information Protection Law (PIPL) in the fintech area.
Low carbon and green fintech
In September 2020, President Xi Jinping pledged that China would hit its carbon emission peak before 2030 and become carbon neutral before 2060. To achieve this goal, no industry can just stand by, including the fintech sector.
In addition to the integration of fintech and green financing, the plan proposes to build green data centres and systems based on advanced technologies, putting forward clear goals for the power usage effectiveness (PUE) values of data centres. PUE is the ratio of the total amount of power used by a data centre to the amount of power delivered to computing equipment. It describes how efficiently a data centre uses energy — an ideal PUE is 1.0. The plan aims for PUEs of 1.3-1.5; the PUE values of most data centres in China are currently above 2.2.
Fair and inclusive
One of the main challenges faced by China’s fintech sector is unbalanced growth among different regions and groups. The Fintech Development Plan for 2022-2025 tries to address this issue by making the fintech sector fairer and more inclusive.
In the field of rural finance, with the help of technologies such as the Internet of Things, satellite remote sensing and electronic enclosures, the plan aims to achieve automatic data collection and improve traceability for agriculture, while also increasing the penetration rate of fintech in rural areas.
For special groups, including older adults, those with disabilities and minority groups, the plan proposes the application of accessible financial products and services, such as large-character versions, voice versions and minority language translations.
Despite the ongoing crackdown on tech giants and greater regulatory scrutiny of the fintech sector, the Fintech Development Plan 2025 indicates that fintech is a prioritised area for development in China. Through the second iteration of the Fintech Development Plan, China wants to build momentum to achieve significant improvement in the sector’s core competitiveness by 2025. To translate this into plain language, the fintech domain is still encouraged in China and supported by the government, but China wants the sector to develop in a regulated, more balanced, and high-quality way.
A version of this article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world.