China to set up institute to regulate Internet finance: PBOC

Zhou Xiaochuan, governor of the People's Bank of China, answers questions at a press conference on the financial reform and development on the sidelines of the fourth session of the 12th National People's Congress in Beijing, capital of China, March 12, 2016. Photo: Xinhua

China is to set up an Internet finance institute in an effort to enhance regulation of the Internet finance industry, according to the governor of the People’s Bank of China.

The plan has been in preparation for some time and would be announced in a couple of days, Zhou Xiaochuan said Saturday at a press conference during China’s annual Two Sessions.

“Internet finance” is a general term which concerns a series of online businesses including Internet payment, peer-to-peer (P2P) lending, crowdfunding, as well as insurance product business. While some businesses have made contribution to the development of market economy, some high-risk businesses like the P2P online lending new to China’s market still need stricter supervision, Zhou said.

In January this year, the China Banking Regulatory Commission, together with some other government agencies, announced a series of draft provisional rules to regulate the country's online lending sector.

The document said that China would improve financial services, guide informal finance and eliminate the root causes of illegal fund-raising.

The release of the document came after Ezubao, an online P2P platform, was found to cheat about 900,000 investors by more than 50 billion yuan (7.6 billion US dollars) through faking investment projects. An executive from the parent company has admitted it was nothing but a Ponzi scheme.

Ezubao is not an isolated case in China. Given the rising financing difficulties amid a slowing economy, P2P lending platforms have mushroomed across the country and have attracted numerous individual investors with high returns.

By the end of November, there were more than 2,600 such brokers nationwide which have raised a total of 400 billion yuan, around 30 percent of which were found to have irregularities and problems in their operation, according to the Xinhua News Agency.

“It (the P2P lending) is a new-born thing, and when awful things happen everybody looks for supervision. But as to what kind of regulation it should be and how it should be done, we are still exploring,” Zhou told reporters.

Last July, the State Council released a document on how to create a healthy environment for the Internet finance industry, which also mentioned the regulation of the industry, according to the governor.  

“But because of the rapid development of this industry and many new problems emerging, those rules could not be fully implemented before new challenges emerged. Further study still needs to be done,” he said.

In addition, there should be specialized measures in managing illegal online businesses, especially one like cheating, Zhou added. Such illegal activities on the Internet not only need supervision and self-regulation, but also overhaul which would be helpful to the healthy development of the whole Internet finance industry.

“(All of the) efforts should be made in the right direction, so that the efficiency and service could be truly increased. Incentive mechanism should also be used in a right way. Those with fraudulent and wrong intentions must be transformed in the first place,” said Zhou.

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