Taming a behemoth called fintech

In a speech at the 2020 Bund Summit in Shanghai, which was held from Friday to Sunday, Vice-Minister of Finance Zou Jiayi said the country supports the development of financial technology, but it should be guided by market rules to ensure it doesn't lead to excessive consumption, creating a "winner-takes-all" situation.

Shang Fulin, director of the Economic Committee of the Chinese People's Political Consultative Conference National Committee, said fintech is a technology-driven innovative financial activity and warned that the sector should not violate the basic rules of financial operation, else it risks being punished by the market.

The two officials' attitude toward fintech reflects the authorities' vigilance after a series of problems and challenges brought about by fintech in the past years. Just last year, Zhou Xiaochuan, former governor of the central bank, stressed the need to guard against big technology enterprises' "winner-takes-all" formula and their invasion into inclusive finance.

Fintech's essence remains finance, with technology just being a tool to achieve desired results, so it must follow regulations. In fact, technology is there merely for financial innovation and cannot alter the sector's traditional purpose.

Fintech's development in recent years has brought about positive changes including promoting inclusive finance. Yet it has also exposed potential risks and vulnerabilities. Therefore, while holding an open and inclusive attitude toward the sector, we should keep a sober mind on its development.

The authorities need to pay attention to fintech's potential in boosting the financial sector.

Ever since third-party payment tools were created on e-commerce platforms, enterprises have launched various consumer credit tools to stimulate consumption. Some platforms use various methods to encourage young people to consume more. Then there are other platforms that launch almost no-threshold consumer credit tools to encourage people to increase consumption.

These platforms thus cultivate a credit-dependent consumption habit among young people, obtaining benefits from both consumption and credit channels.

According to a Nielsen report released last year, 86.6 percent of China's young people avail of consumer credit, and their average debt-to-income ratio is 41.75 percent. Some illegal loan sharks, too, have entered the sector, causing many social problems.

How to prevent big fintech enterprises from promoting the winner-takes-all formula is a global problem. The rapid growth of such enterprises has increased the need for the authorities to strengthen financial regulation while encouraging innovation.