An uncertain future for China fintechs? Part 3

Pushing too hard in one area without accompanying reforms elsewhere could backfire for China.

The anti-trust campaign that aims to increase competition in the technology sector is not evenly applied to other industries.

Many state-owned enterprises are protected from foreign competition, while also the biggest recipient of available credit.

The demand for fintech services will unlikely change. Analysts expect online microlending to continue expanding at a faster pace than bank lending. But even if operational businesses were to slow, interests in these companies remain, as industry leaders like Ant Group have “accumulated a large database to facilitate its underwriting system, powered by big data and artificial intelligence”, according to Fitch Ratings.

The good news is that while fintechs face tougher operating conditions going forward, several funding options are still available.

Shanghai’s tighter listing requirements correspond to Hong Kong loosening its own rules. Since 2018, Hong Kong has allowed new economy companies in their pre-revenue stages to list. Some tech companies would still head to New York in search for deeper capital markets and prospects of higher valuations despite possible delisting risks down the road.

Recent liberal reforms to deepen domestic markets were aimed to help incubate the next generation of national champions. Optimism for this goal was evident when Ant Group chose not to follow its parent company’s 2014 decision to list in the US.

The Ant Group IPO was pulled near the one-year anniversary when Alibaba listed secondary shares in Hong Kong amid China’s homecoming effort.

The regulatory environment will continue to evolve rapidly, with regulatory oversight balancing the positive effects of financial innovation against the risk associated with growth in online consumer credit, according to insights published by Fitch.

But while many now openly support the government’s campaign, if pushed too hard, tech groups still have viable fund-raising options elsewhere. In a recent concession, Chinese regulators approved Ant Group to operate a new finance company on the condition it holds more money like a traditional bank.

This may foreshadow the new fintech normal, where Chinese tech companies will need to rely on outside capital to meet domestic requirements.

This is an excerpt from an article in the Summer 2021 issue of FinanceAsia

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