What's Next for Fintech?

In China, the Ministry of Science and Technology’s official newspaper recently praised Tencent, Alibaba, and Baidu for their contributions to the country’s economy and development. Yet praise does not imply future independence. Over the past two years, the Chinese leadership’s (somewhat delayed) recognition of the platform companies’ significance spurred a fintech “rectification.” What started as a flurry of punitive measures quickly evolved into more systemic control. Earlier this year, Guo Shuqing, the Party Secretary for the People’s Bank of China, announced that rectification of the 14 biggest fintech firms had been “basically completed.”

While regulators’ splashier moves might be over, the crackdown still casts a shadow over China’s tech sector. Regulatory empowerment and deeper state involvement mean that full emancipation for the private sector is out of reach. On top of permanent regulatory oversight, state entities are taking “golden shares” (which confer special management power) in major tech companies such as Alibaba and Tencent. Perhaps not coincidentally, these two firms’ operations far exceed financial services. Tencent owns the super-app WeChat, while Alibaba’s Ant Group is a multi-pronged digital services and e-commerce giant.

One of the Communist Party of China’s core priorities is economic growth, which these firms are poised to supply. But the party-state’s first priority is to maintain central control, which the government will rush to defend if and when these firms start to appear too powerful. If industry and party goals overlap, fintech firms will have nothing to worry about. But that is a big “if.” Uninterrupted harmony between the two is unlikely.

Read the full conversation per Project Syndicate Quarterly here.