Fintech regulation in China – looking back on the past 10 years

Financial technology regulation in China is most clearly understood from regulation trends of its financial institutions, where two questions arise: Who should technology serve; and how can it achieve that goal?

The integration of technology and finance in China, and the transformative power of technology in finance, cannot be discussed without mentioning Ant Financial, an entity derived from Alipay.

Ant Financial’s initial funding round occurred in 2014. This was at a time when global investor interest in fintech was booming, and LendingClub’s IPO in December 2014 marked a peak. There was significant private equity investment and IPO activity centred on “internet finance”.

Looking back now, it is evident that many entities leveraged the term “internet finance” to engage in financial services requiring approvals or licences. China’s tolerance for financial innovation at that time was remarkable.

Turning point

But the latter half of 2017 marked a turning point. The Fifth National Financial Work Conference (14-15 July, 2017) emphasised “strengthening financial regulation to prevent systemic financial risks, and intensifying internet finance regulation”.

Following this, a series of regulations strengthened financial oversight. For example, on 1 December 2017, the Notice on Regulating and Rectifying ‘Cash Loan’ Businesses was issued, effectively ending five years of rapid “internet finance” growth. The Fifth National Financial Work Conference also proposed establishing the Financial Stability and Development Committee under the State Council to co-ordinate financial regulation. This updated and enhanced the previous inter-agency meeting system, promoting co-ordination in a segmented regulatory environment.

In 2018, the State Council merged the China Banking Regulatory Commission and the China Insurance Regulatory Commission to form the China Banking and Insurance Regulatory Commission, retaining the China Securities Regulatory Commission and optimising the roles of the different regulatory bodies.

Enhanced regulation and antitrust investigations of large internet finance companies have since become routine. In March 2023, the Plan for Institutional Reform of the Party and State launched a new round of financial regulatory system reforms, resulting in a framework known as “one committee, one bank, one bureau, and one commission”.

The Financial Stability and Development Committee under the State Council is China’s highest-level financial regulatory authority, responsible for co-ordinating and deciding on major issues related to financial stability and development. The People’s Bank of China, as the central bank, formulates and implements monetary policy and maintains financial system stability. The National Financial Regulatory Administration is China’s macro-prudential regulatory body, tasked with overseeing and managing financial markets and protecting investors. The China Securities Regulatory Commission supervises and regulates the securities market.

Stringent trend

From 2017 to 2024, a progressively stringent trend in financial regulation can be noted. Worth exploring further is the relationship between internet technology giants and financial services.

As mentioned, the emergence and development of Alipay and Ant Financial in 2014 highlighted the significant impact of internet technology giants on the vested interests of traditional financial institutions.

As people increasingly rely on digital and online channels, digital profiling and big data have enabled financial services to reach previously underserved clients, helping address the issue of information asymmetry in financial services

Additionally, as internet traffic becomes a highly valuable and expansive resource, the combination of internet technology giants and financial services will undoubtedly disrupt traditional financial ecosystems, relocating resources and interests.

On 11 December 2020, the Central Political Bureau first proposed “strengthening antitrust and preventing unrestrained capital expansion”. This encouraged platform companies to be innovative and enhance international competitiveness, while supporting both public and private economic development under the regulatory guidelines.

On 10 December 2021, the Central Economic Work Conference introduced a new principle: “Capitalise on the positive role of capital as a production factor while effectively controlling its negative impact. Establish a ‘traffic light’ for capital, legally strengthening effective oversight to prevent unrestrained capital growth.”

On 21 October 2020, the China Securities Regulatory Commission approved Ant Group’s IPO registration on the Star Market, with plans to list on 5 November 2020. However, on 3 November, the Shanghai Stock Exchange announced that “due to non-compliance with relevant regulations, Ant Group’s listing is temporarily suspended”.

On 26 December 2020, the People’s Bank of China, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission and State Administration of Foreign Exchange jointly interviewed Ant Group, signalling that financial services led by internet platforms would now be subject to regulatory supervision. After nearly four years, ongoing regulatory adjustments and dialogue continue.

Since 2021, China’s regulations have intensified in areas such as cybersecurity, data security and personal information protection, particularly concerning cross-border data transfers.

In summary, current financial technology innovations are reverting to being led primarily by traditional, licensed and mostly state or locally owned financial institutions. This is key to understanding and predicting China’s fintech regulation.

Crypto crackdown

Another key point is the regulation of cryptocurrency. In December 2013, five ministries, including the People’s Bank of China, issued the Notice on Preventing Bitcoin Risks, clarifying that Bitcoin lacks the attributes of legal currency, and financial institutions and payment agencies must not conduct Bitcoin-related business.

The notice clarified Bitcoin’s nature, stating it was not issued by a monetary authority and lacks attributes such as legal tender status and coercion, meaning it is not a real currency. Instead, it is a specific virtual commodity without the same legal status as currency and cannot circulate as money.

However, as an internet-based commodity transaction, individuals are free to participate at their own risk.

In September 2017, seven ministries, including the People’s Bank of China, jointly issued the Announcement on Preventing Risks of Token Issuance Financing, comprehensively banning virtual currency trading activity including Bitcoin, and shutting down domestic Bitcoin trading platforms.

Agencies including the People’s Bank of China, the Cyberspace Administration of China and Supreme People’s Court issued notices to prevent and address the risks associated with virtual currency trading speculation. Foreign virtual currency exchanges providing services to domestic residents via the internet are also considered illegal financial activities.

Domestic personnel affiliated with foreign virtual currency exchanges – or those who knowingly, or who should know, they are engaging in virtual currency-related business but still provide services such as marketing, payment settlement and technical support – will be held legally accountable.

Backing blockchain

Despite the stringent control over private cryptocurrencies, the government does support blockchain technology as a way to improve efficiency, and is actively working toward issuing a central bank digital currency. On 18 October 2024, the People’s Bank of China announced the winners of their “2023 Financial Technology Development Award” recognising many distributed and blockchain technology applications. In December 2016, the State Council’s 13th Five-Year Plan for National Informatisation included blockchain as an emerging technology, marking the beginning of government-led blockchain development initiatives. In May 2018, at the Academician Conference of the Chinese Academy of Sciences and the Chinese Academy of Engineering, President Xi Jinping stated that blockchain technology was advancing rapidly, signalling a new stage in blockchain development.

Various local governments have actively promoted blockchain applications and industry development. According to incomplete statistics, nine provinces and cities issued policies to support blockchain industry development in 2017.

Since 2018, more than 30 provincial and municipal governments have issued more than 40 policy measures to support blockchain applications and drive local blockchain industry growth. This strong support from the central government and local authorities has created a favourable policy environment for blockchain development.

Key takeaways

In the evolving landscape of financial technology, China’s regulatory approach illustrates the delicate balance between fostering innovation and maintaining control over emerging financial risks.

As the nation progresses towards a model where traditional, licensed financial institutions take the lead, the focus remains on creating a secure, stable and transparent financial ecosystem. This is expected to pave the way for sustainable growth and enhance global competitiveness.

China’s fintech future will likely continue to prioritise areas such as multimodal data processing, intelligent applications, and cloud native solutions. The regulatory emphasis on security, privacy and the controlled use of disruptive technologies like AI and blockchain reflects a commitment to a resilient financial sector.

By championing innovation within a robust regulatory framework, China aims to ensure that technological advancement serves the public interest, aligning with national economic goals while adapting to global financial trends.