China's Internet Finance Boom and Tyrannies of Inclusion

By Loubere, Nicholas | China Perspectives, October 1, 2017 | Go to article overview

China's Internet Finance Boom and Tyrannies of Inclusion


Loubere, Nicholas, China Perspectives


Introduction

This article critically examines the sudden emergence and expansion of Internet finance in China. Over the past decade, China's Internet finance industry has grown and diversified at a dizzying rate. Hundreds of millions of people now use third-party online payment services to complete financial transactions, turn to peer-to-peer (P2P) lending platforms or online banks to borrow money, and sidestep brick-and-mortar financial institutions to invest their savings in online investment funds (Guo, Kong, and Wang 2016). This has marked a sea change in how commerce operates in the country, and has transformed the ways in which people access and interact with financial products. Prior to the Internet finance boom, the Chinese financial system was dominated by state-owned institutions operating partially based on political imperatives, rather than unrestrained profit seeking. In China, formal banks are required to lend at below-market interest rates, and have historically targeted larger enterprises and local governments with their loans, making it difficult for households or small businesses to gain access to credit (Ong 2012). The rise of Internet finance has dramatically changed this situation. With the government being slow to issue regulations on the provision of digital financial services, Internet finance providers have had much more freedom to operate than traditional brick-and-mortar financial institutions. This has resulted in vastly expanded coverage to previously excluded groups in both rural and urban areas. In China today, all that is needed to gain access to (semi)formal savings and credit is a smartphone.

China's rapidly evolving Internet finance industry is characterised by diversity and innovation, with a huge number of providers entering the market in an attempt to capitalise on the sudden liberalisation of financial service provision in the country. This has resulted in the development of a wide range of loan and investment products targeting a diverse client base- ranging from poor and marginalised rural populations to large urban enterprises in search of investment capital (Guo, Kong, and Wang 2016). Digital loans are primarily provided by two types of Internet finance institutions: online banks and P2P platforms. Online banks-such as WeBank (30% owned by Tencent) and MyBank (30% owned by Ant Financial of the Alibaba Group)-target those involved in e-commerce platforms, including Taobao shop owners and customers, using their online transactions to determine creditworthiness. Currently these banks are only in the business of providing loans, which vary in size from a few thousand to millions of yuan, at rates slightly higher than brick-and-mortar banks. However their ultimate goal is to become full deposit-taking financial institutions.(1) China's P2P market is the world's largest, with almost 6,000 P2P platforms facilitating transactions worth approximately one trillion yuan in 2016. Some large platforms, such as Paipaidai, serve more than two million active borrowers and lenders.® P2P platforms are theoretically only supposed to act as intermediaries, providing a service allowing lenders to offer credit directly to borrowers. However, in reality a wide range of P2P platforms operate in very different ways. In some cases platforms pool lender funds and engage in asset transformation, thus creating a space between the lender and the bor- rower (Deer, Mi, and Yu 2015). These types of practices have resulted in fraudulent activity and some high-profile bankruptcies (see section four), and have prompted a regulatory crackdown.(3) While this has restricted the behaviour of P2P platforms and somewhat consolidated the industry, space still remains for disruptive (or chaotic) innovation.

P2P platforms must be understood as vehicles for both credit and investment, as lenders use P2P services as an alternative to parking their capital in low-interest savings accounts. While engaging in P2P lending can be a relatively risky activity, it offers substantially higher returns than traditional types of investment. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

China's Internet Finance Boom and Tyrannies of Inclusion
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.