Foreign media fail to understand China’s fintech regulators

New rules for financial sector are not a manifestation of malign overreach.

Nan Li is associate professor of finance at the Antai College of Economics & Management at Shanghai Jiao Tong University. John D. Van Fleet supports industry relations for the Antai College.

It seems that nary a month goes by without some Anglophone media outlet making space for yet more misleading news coverage about Jack Ma’s Ant Group and China’s financial sector overall.

Last month’s eruption was about supposedly new and nefarious regulatory actions infringing on Ant’s hard-won entrepreneurial successes and innovations. If only they’d waited a week, or just done a bit more research, those media organizations might have avoided embarrassing themselves.

After Ant recently announced that its now separate lending arm Huabei would – with borrowers’ permission – report individual credit data such as loan volume and repayment history to the People’s Bank of China, the company confirmed that personal expenditure data would not be reported.

Better late than never. For more than a year now, China’s regulators have required Ant, and other online microlenders to report such data, but Ant had long tried to resist its responsibilities, as shown by Ma’s now-infamous speech in Shanghai attacking financial regulators as having a “pawnshop mentality.”

Since then, China’s regulators have been increasingly clear on Ant’s path to redemption: separate the consumer loan and payments businesses, and follow appropriate financial sector regulations aimed at reducing conflicts of interest and moral hazard.

Throughout the world, credit reference bureaus provide the mission-critical function of credit data aggregation. In some countries, these organizations are state-controlled. In others, they are privately run, such as U.S. data analytics company FICO. Nowhere is the essential component of consumer data protection left to untethered private-sector lenders, as Ant had previously been.

The all-too-regular outbreaks of misleading reportage about Ant and China’s consumer credit sector commonly rest on a series of myths, in addition to the perceptual biases that ‘everything that happens in China today is news’ or is a politically motivated attack.

One such myth is that Ant’s credit scoring model and related data is valuable intellectual property that Beijing is eager to get its hands on.

This supposed government attack is cast as a pernicious blow against free enterprise, part of some existential battle going on between the titans of noble industry, captains of creative destruction and, again, the economy-damaging bureaucrats.

But Ant’s credit scoring model, assembled by nonfinancial techies with little risk-management background, has mainly been based on consumers’ expenditure behavior. By itself, this data is less than worthless. Were it a stand-alone entity, it would be a loss-making enterprise.

A sign with a QR code for payment via Alipay sits amid produce at a farmer’s market in Beijing in October 2020: Ant’s credit scoring model has been based on consumers’ expenditure behavior. © AP


Putting to rest the Chicken Little media squawking, recent announcements from Ant confirm that the central bank has no interest in gaining personal expenditure data collected by Ant from Alipay, Alibaba Group Holding’s payments platform.

Moreover, in a yearslong regulatory review that resulted in the introduction in August of the new Personal Data Protection law, personal data including expenditure and credit history is protected. It is now illegal in China for any other party to read or use data without a person’s specific authorization, let alone exploit the data for profit. Again, that is well in line with global practice and common sense.

China’s large commercial banks have long been playing their proper part — developing far better credit scoring models than Ant may ever be able – or willing – to do, since the banking reforms of the 2000s.

China’s Credit Reference Center was created in 2006 to “establish, operate and maintain the national centralized commercial and consumer credit reporting system.” For years now, China’s commercial lenders have relied in part on CRC data – the largest such pool in the world – to measure and manage credit risks.

Another myth is that the recent regulatory announcements are a net loss for investors.

While that may be true for investors who have gained from Ant’s predatory lending practices, investors in companies with a commitment to developing long-term value should be pleased by the recent regulatory updates. And many are, judging by the subsequent statements from some of the world’s most renowned investors.

All over the globe, there is a robust debate, even within companies in the financial sector, about the right way to develop fintech. What no one doubts is the need to regulate financial institutions – including fintech – to ensure the soundness and safety of the financial system.

Following the release of Huawei Technologies’ Meng Wanzhou last month, the U.S. Justice Department released a statement asserting that, “financial institutions are our first line of defense in maintaining the safety and security of the U.S. financial system.”

Therefore, we suggest that regulatory ‘interference’ in Ant’s business model is not a manifestation of malign governmental overreach. Not only is it to the benefit of China, but it is perhaps a model for other economies to follow.

Regardless, societies overall and the wise investors within them will do well, including in their long-term investment returns, to evaluate regulatory measures on their specific value – or lack thereof – not false media narratives. International news organizations could enhance their credibility by avoiding the hype being driven by vested-interest players.

Authors: Nan Li, John D. Van Fleet, NIKKEI Asia

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