The State of FinTech in China

 In Fintech, Startup Thought Leaders

Situated in central and east Asia, China is the most populous country and one of the fastest growing economy globally. China and Russia are the two countries in the world that share their boundaries with 14 countries, for China that are India, Kazakhstan, Mongolia, Pakistan, Russia, Myanmar, Afghanistan, Vietnam, Laos, Kyrgyzstan, Nepal, Tajikistan, North Korea and Bhutan. Seen as one of the potential superpowers, it invented credit banking and paper money besides many other things. Its principal urban centres are Shanghai, Guangzhou, Beijing, Chongqing, Shenzhen and Tianjin.

According to, China’s population is estimated to be 1.38 billion as on December 24, 2016, which is equivalent to 18.72% of the total world population. Its population density is 147 per sqr km. 56.6% people live in urban areas. The age structure of Chinese population suggests 17.1% population below 14, 13.27% population from 15 to 24, 48.42% population from 25-54 and rest above 55 years. China’s overall literacy rate was 95% in 2010, which is considered an impressive jump from 78% in 1978. 99.6% young population can read and write.

In November 2016, in the latest global ranking of The British Quacquarelli Symonds (QS), 53 Chinese Universities were included. Tsinghua University won the third spot after Stanford University and Massachusetts Institute of Technology (MIT). Australia’s Sydney University and the UK’s Cambridge University held fourth and fifth rank respectively. The QS ranking shows the performance of universities graduates from the employability point of view. Out of these 53 higher institutions, 33 are from the Chinese mainland, 14 from Taiwan, five from Hong Kong and one from Macao.

In another prestigious ranking – Times Higher Education’s (THE) BRICS & Emerging Economies University Rankings 2017 ? Chinese universities took seven of the top ten positions. Peking University stood 1st, and Tsinghua University came 2nd. According to new reports, the Chinese government is worried about global ranking, as it wants to enhance its global competitiveness and knowledge. The country is spending on higher education to attract world-class faculty and students.

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In 2015, China announced its plan ?Made In China 2025′ to transform the country from a manufacturing giant into a world manufacturing power. Despite China’s effort to improve its academic standard, the 2017 edition of the Global Entrepreneurship Index has ranked the country at 48th in the world. The global index bases it?s ranking on factors such as cultural support of entrepreneurship, human capital and risk tolerance. Experts believe that China is a great place for entrepreneurship as not only government supports and encourages it, venture capital and private equity are also available adequately, and Chinese consumer market is huge and still growing, which shows a possibility for any business to scale up.

Startup Scene in China:

According to a report, graduates’ interest in starting their own business has gone up from 3.2% in 2014 to 6.3% in 2015. This is because of some success story of startups such as Sina, Sohu, Baidu, Alibaba, Tencent (QQ) and Xiaomi which the country has shown to the world. Chinese search engine Baidu and social networking site Hyves were started in 2000 and 2004 respectively, and today they compete with Google and Facebook.

Experts believe that Chinese startups can compete globally and perhaps that’s the reason, according to Datenna, a website that tracks Chinese companies, six Chinese startups feature in global top 20 ?Unicorns’. Startup companies valued at over $1 billion are called Unicorns. The majority of them are three to four-year-old.

For instance, Didi Dache, an app for people to request taxi for pick-up and drop facility, was launched in September 2012. In February 2015, Didi Dache merged with Kuaidi Dache, another taxi hailing firm to become Didi Kuaidi. In September 2015 it rebranded itself as Didi Chuxing and in June 2016, it acquired its nearest rival Uber China. In only four years, this company is valued at $35 billion and has expanded to 400 cities in China. Recently it earned $4.5 billion funding from companies like Apple, China Life Insurance Co., and the online shopping firm Alibaba Group Holding Ltd.

Global recognition to some of the Chinese startups has brought optimism and positivity for youngsters. This recognition further helps Chinese startups attract significant investment both from local as well as the foreign venture capitalist at the early stage. While some Chinese startups dominate in the domestic market, others such as Xiaomi and DJI, which is into drone manufacturing, have sufficient global presence.

As far as foreign startups setting foot in China is concerned, it’s easy to start the business but the language and market condition pose a lot of challenges. This often discourages many foreign venture capitalists to invest in China. China’s Internet speed has a lot of scope for improvement, and in a recent report, it was ranked 91st out of 200 countries for its Internet speed. It further suggests that at present half of the population (around 700 million people) use the Internet and 90% use the mobile phone to access the Internet.

Despite that foreign companies have entered into China and have helped create a healthy startup ecosystem. WeWork has opened collaborative workspaces as it sees favourable market sentiments and growing the potential customer base. Networking portals like help people come together for startup events and discussions.

Venture capitalism is not a very age-old phenomenon in China. Around 2005, very few people wanted to come forward and invest money in others’ ventures. Even entrepreneurship was never a prominent feature in Chinese culture. Entrepreneurial values like doing something innovative or coming out with an out-of-the-box solution to any problem was also not encouraged in the educational or social system. That’s the reason China’s emergence on the global startup horizon is much later than the US or many other European countries however in the short span of time; the country has made the commendable transformation.

In just three to four years, the startup scene has boomed majorly in prominent cities such as Shanghai, Guangzhou, Beijing, Chongqing and Shenzhen. Not only that the attitude is turning from conservative to more experimental, economic growth and full support from the government have helped China move towards becoming a startup destination. The success of startup ventures, some of which have turned into business giants one like Didi Chuxing, have created wealth and spirit to innovate.

How big is the FinTech in China?

According to, China’s FinTech market is expected to show an annual growth rate of 30.2%. With this growth rate, the total amount of transactional value would become US$2,861,126 million in 2021. It further says that digital payment is the largest segment with a total transaction value of US$ 587,039 million in 2016. FinTech companies which are in-scope in the country are into digital and alternate financial services, digital payments, cross-border peer to peer payments, digital commerce transactions, robo-advisory and automated wealth management services, online crowdfunding and venture financing.

Segments of FinTech in China:

According to another report released in June 2016 by Mckinsey & Company, China, Internet finance sector had the market size of $1.8 trillion by the end of 2015 and payment sector dominated out of all the FinTech segments with 89.2% share. Both wealth management and financing (crowdfunding, peer-to-peer lending and small and micro loans) stood second with 4.6% share each and rest 1.5% share went to Insurance-tech, cloud, etc.

China has 500 million Internet finance services users, which is the largest in the world. By sheer volumes too, it clocks $150 billion of online transaction, placing it in top league globally.

Last year in September 2016, KPMG came out with a report on leading fifty financial technology companies of China. A few top listed among them are Anxindeli, which provides financial services to the agriculture industry; Baidu Financial Services Group, which deals in financial services business; Baifendian Group and 100credit (Beijing) Financial Information Services Co. Ltd. that provides a number of services by harnessing big data technology; Shanghai Ice Kredit Information Technologies Co. Ltd. which uses machine learning algorithms and big data technology to perform credit assessments, Tenpay, which is a third party payment platform; which is an Internet finance company and RQuest which deals in risk management, valuation pricing, asset securitisation and asset management.

(a) Online Payment: Major players in this segment are Alibaba’s Alipay, which has captured about half the market, Tencent’s Caifutong, Yinshang and 99Bill. Alipay collects payment from Chinese buyers for overseas online merchants, it offers Chinese customers overseas online shopping through the mobile phone and also provides custom declaration services. This segment is most developed among all FinTech segments in China.

(b) Wealth Management: Major players in this segment are Alibaba’s online money market fund Yu’E Bao, Tencent’s asset management platform Licaitong, specialized wealth management firms such as Noah and Hang Tang. People can invest their money into these products instead of keeping in banks and earn higher returns than what banks pay. For instance, Yu’E Bao takes money from customers and invests in funds.

(c) Financing: The Mckinsey & Company’s report says that most innovations have happened in the investment sector. The primary modes of funding are supply-chain, consumer financing, P2P lending and crowdfunding. Players who dominate the market are JD, Gome, PPdai, etc

. (d) Other segments: Blockchain, cloud services, insurance firms have come up but their market size is small, and they are yet to mature in the FinTech sector.

Status of policy regulation In China:

The government of China is fully aware that encouragement to entrepreneurship can lead to sustained economic growth. Hence, it has made laws to support and promote startups. The country compensates losses to those local investors who suffer losses due to their investments in early stage startups.

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Not only that, the government offers land, lower taxes, subsidies on operational cost and funding to startup incubation spaces. People’s Bank of China has been promoting tech companies from as early as in 2013.

Startup Incubators in China:

Reports suggest that five years ago there were hardly incubators and accelerators in China, but today there is incubator in every street and business hub in big cities. It is believed that China has more than 2000 incubators, which support all kinds of startup activities. These incubators include those started by big enterprises, which were startups like Baidu, and Tencent, Microsoft Accelerator and government supported programmes.

The Ministry of Science and Technology’s Torch Programme, which was initiated way back in 1988 to develop high technology and create the optimised environment, has become one of the most successful entrepreneurial programs worldwide. It has created an ideal environment to encourage tech innovation and startups. Under this programme, innovation clusters, technology business incubators, seed funding and venture guiding fund has been created. There are 54 industrial parks and more than 1000 productivity promotion centres with all kinds of supports ? training, incubation services, mentoring, product testing, etc. ? for startups.

Besides these, more than a thousand technology business incubators both in private and public domain, in various places including universities have powered many startups, which have become large enterprises today, for instance, Lenovo and Huawei.

One of the largest Chinese government programs that support research and development activities is Innofund, which was set up in 1999. It offers grants to those companies, which are innovative with real market potential but unable to get financial support from individuals or institution at the early stage. Once these companies cross the fledgeling stage, they get financial assistance from banks and other financial institutions.

China has taken all these steps to strengthen its science and technology infrastructure to compete with its rival in the United States. China has moved from state-owned economy to private entrepreneurship, and today more than 1000 venture capitalists are there to fund various entrepreneurial activities. Like NASDAQ stock exchange, it created ChiNext in 2009 to provide financial support to startups.

Amidst all the growth story of Chinese financial technology, a report by iMedia says that incubation spaces in China have come up much more than it requires and that’s why more than 60% stay empty.

Current status of financial institutions in China:

People?s Bank of China regulates all financial institutions in China. The key players in the banking sector are state-owned commercial banks, policy banks, city commercial banks, trusts and investment corporation and country banks.

Banks in China are also adopting innovative ways to stay in competition with online finance companies such as Alibaba and Tencent. Banks have shifted their 80% retail business online, and experts believe that online finance companies haven’t grown so big that they will replace formal financial institutions in the country. In 2015, the share of online financial institutions towards banking business was less than 1% in 2015. But banks don’t want to wait to adopt the new technologies. They want to stay ahead in the race rather. Banks also realise that internet banking is convenient and customer-friendly. Reports suggest that 358 million people use the Internet for financial transactions.

A section of experts believes that banks are under strict state control and so they are very slow to embrace the changes. A lot of innovative products offered by the financial technology companies are not available to the banking sector.


Despite the growth of Internet finance sector, a lot of areas have high growth potential. One of them is mobile payment and wealth management. Sectors like financial cloud and block chain are still at a very nascent stage, and new players can grab a significant market share with innovative product and business plans.


Supportive regulatory environment and emerging e-commerce business have made China one of the fastest growing FinTech markets in the world. Most of the FinTech companies, which have shown potentials, are young and promising for the economic growth. As compared to the United States of America, China’s realization to harness the benefits of financial technology came very late, yet it has done everything to cultivate the country’s knowledge economy.

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