Internet-led financial innovation key to structural reforms

Fortunately, the recent rise of Internet banks in China has come to the rescue. It is reported that MYbank, a private lender backed by E-commerce giant Alibaba, has lent a total of 45 billion yuan (around $6.88 billion) in just eight months to farmers, merchants on Alibaba's online marketplace, restaurant owners and mom-and-pop stores, extending loans to 800,000 borrowers that have trouble accessing financing through traditional banks.

Alibaba's rival, Tencent, also runs a private lender called WeBank that focused on consumer credit and wealth management.

These new banks are among a group of private lenders approved by the Chinese banking regulator under a trial program to encourage lending to small and private businesses, as well as to rural residents.

The competitive edge of such Internet banks is obvious. On the one hand, neither lender has a physical presence, which means both can provide services online or through mobile applications with lower fixed costs. On the other hand, both project their ability to efficiently gather information on clients' creditworthiness based on their online activities.

Since such Internet banks are relatively new, they cannot claim to be well-prepared for all the risks that the banking sector could face before China's economic growth bottoms out. But their advantage in providing financial services to small companies that get little or no attention from traditional banks should be made full use of to help translate the accommodative monetary policy into a real and direct boost for small businesses.

If a boom in small businesses, most of which are in the service sector and can create jobs to absorb the shock of the reduction in industrial overcapacity, is vital to the success of China's economic transformation, more Internet-based financial innovation should be encouraged to benefit small businesses while related regulations are updated gradually.

The author is a senior writer with China Daily. zhuqiwen@chinadaily.com.cn