Fintech regulation in China – a look back at the last 10 years

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

The integration of technology and finance in China, as well as the transformative power of technology in finance, cannot be discussed without mentioning Ant Financial, a spinoff of Alipay.

Ant Financial’s first funding round took place in 2014. This was at a time when global investor interest in fintech was booming, and LendingClub’s IPO in December 2014 marked a summit. There has been significant private equity investment and IPO activity focused on “internet finance”.

Looking back, it is clear that many entities used the term “internet finance” to engage in financial services requiring approvals or licenses. China’s tolerance for financial innovation during this era was remarkable.

Turning point

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

Following this, a series of regulations strengthened financial supervision. For example, on December 1, 2017, the Notice on the Regulation and Rectification of “Cash Loan” Businesses was issued, ending five years of rapid growth of “Internet finance”. The Fifth National Financial Work Conference also proposed establishing a Financial Stability and Development Committee under the State Council to coordinate financial regulation. This updated and improved the previous system of interagency meetings, thereby promoting coordination 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 optimizing the roles of different regulatory bodies.

Since then, increased regulation and antitrust investigations into large Internet financial companies have become commonplace. In March 2023, the Party-State Institutional Reform Plan launched a new round of reforms to the financial regulatory system, 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 coordinating and deciding 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 the stability of the financial system. The National Financial Regulatory Administration is China’s macroprudential regulator, responsible for supervising and managing financial markets and protecting investors. The China Securities Regulatory Commission supervises and regulates the securities market.

Strict trend

From 2017 to 2024, we can note an increasingly strict trend in financial regulations. The relationship between internet technology giants and financial services deserves further investigation.

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 customers, helping to solve the problem of asymmetry of information in financial services.

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

On December 11, 2020, the Central Political Bureau proposed for the first time to “strengthen antitrust laws and prevent the unbridled expansion of capital.” This has encouraged platform companies to be innovative and improve their international competitiveness, while supporting public and private economic development within regulatory guidelines.

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

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

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

Since 2021, Chinese regulations have intensified in areas such as cybersecurity, data security and the protection of personal information, particularly regarding cross-border data transfers.

In summary, current financial technology innovations are beginning to be driven primarily by traditional, licensed, and predominantly state-owned or local financial institutions. This is essential for understanding and predicting China’s fintech regulation.

Crypto Crackdown

Another key point is the regulation of cryptocurrencies. In December 2013, five ministries, including the People’s Bank of China, issued the Notice on Bitcoin Risk Prevention, clarifying that Bitcoin does not have the attributes of legal tender and that financial institutions and Payment agencies must not conduct Bitcoin-related activities.

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

However, in the context of an Internet 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 in Token Issuance Financing, completely banning trading activities in virtual currencies, including Bitcoin, and shutting down domestic Bitcoin trading platforms.

Agencies such as the People’s Bank of China, the Cyberspace Administration of China and the Supreme People’s Court have issued notices to prevent and address risks associated with speculation in virtual currency trading. 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 should know engage in virtual currency-related activities but nevertheless provide services such as marketing, payment settlement and technical assistance – will be held legally responsible.

Support blockchain

Despite tight control over private cryptocurrencies, the government supports blockchain technology as a way to improve efficiency and is actively working on issuing a central bank digital currency. On October 18, 2024, the People’s Bank of China announced the winners of its “2023 Financial Technology Development Awards” recognizing numerous distributed and blockchain technology applications. In December 2016, the State Council’s 13th Five-Year National Informatization Plan included blockchain as an emerging technology, marking the start of government blockchain development initiatives. In May 2018, at the Academicians Conference of the Chinese Academy of Sciences and the Chinese Academy of Engineering, President Xi Jinping said that blockchain technology is advancing rapidly, signaling a new stage in the development of blockchain .

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

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

Key takeaways

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

As the country moves towards a model in which traditional licensed financial institutions take the lead, the focus remains on creating a safe, stable and transparent financial ecosystem. This should pave the way for sustainable growth and improve global competitiveness.

The future of fintech in China will likely continue to prioritize areas such as multi-modal data processing, intelligent applications, and cloud-native solutions. The regulatory focus on security, privacy and controlled use of disruptive technologies like AI and blockchain reflects a commitment to a resilient financial sector.

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