Handbook of Blockchain, Digital Finance, and Inclusion, Volume 2

ChinaTech, Mobile Security, and Distributed Ledger

David Lee Kuo Chuen, Robert H. Deng, David LEE Kuo Chuen

• Publisher: Academic Press
• Year: 2017
• Print ISBN: 9780128122822
• eBook ISBN: 9780128122990
• Topic: Economics
• Subtopic: Finance
• Index: Economics

Handbook of Blockchain, Digital Finance, and Inclusion, Volume 2: ChinaTech, Mobile Security, and Distributed Ledgeremphasizes technological developments that introduce the future of finance. Descriptions of recent innovations lay the foundations for explorations of feasible solutions for banks and startups to grow. The combination of studies on blockchain technologies and applications, regional financial inclusion movements, advances in Chinese finance, and security issues delivers a grand perspective on both changing industries and lifestyles. Written for students and practitioners, it helps lead the way to future possibilities.- Explains the practical consequences of both technologies and economics to readers who want to learn about subjects related to their specialties- Encompasses alternative finance, financial inclusion, impact investing, decentralized consensus ledger and applied cryptography- Provides the only advanced methodical summary of these subjects available today

Chapter 1

The Game of Dian Fu: The Rise of Chinese Finance

David LEE Kuo Chuen; Ernie G.S. Teo

Abstract

In April 2016, Alibaba's Ant Financial Services Group announced US$ 4.5 billion in its Series B round of financing, making history as the largest private funding round for any Internet company. Technology is changing the face of finance in China and disrupting traditional financial institutions and giving the Chinese people access to more financial services. In this chapter, we look at five main areas/types of disruption, how it is changing the face Chinese finance, in the equity market, with peer-to-peer lending and crowdfunding, in its currency and in the banking sector. We also discuss how these disruptions would affect the international economy, especially China's neighbors in Asia.

Keywords

China; Financial institutions; Financial services; Equity market; Peer-to-peer lending; Crowdfunding

Chapter Outline

Acknowledgments

1.1 Introduction: What Is Dianfu 颠覆?

1.2 Dian Fu One: Dian Fu in the Equity Market

1.2.1 Rise of China's GDP

1.2.2 Rise of China's Stock Market

1.2.3 Market Capitalization of the World's Top Stock Exchanges

1.2.4 National Equities Exchange and Quotations (NEEQ)

1.2.5 Private Equity and Venture Capital

1.2.6 Variable Interest Entity (VIE)

1.2.7 Investment Abroad

1.3 Dian Fu Two: Dian Fu in China's Peer-to-Peer Lending

1.4 Dian Fu Three: Dian Fu in Crowdfunding

1.5 Dian Fu Four: Dian Fu in the People's Currency

1.6 Dian Fu Five: Dian Fu in Banking

1.7 Conclusion

1.7.1 Financial Inclusion and Fintech

1.7.2 Expanding to the ASEAN Region

Appendix: Acquisitions of Alibaba

References

Acknowledgments

Special appreciation to the members of the SKBI Dian Fu Research Team Zhang Han, Chang Su, Chi Ying Ying, LinJingXian, and Zoey Phee.

1.1 Introduction: What Is Dianfu 颠覆?

In tandem with the meteoric rise of the Chinese economy, financial institutions in China have grown very large in a short time. This is achieved through innovation not only in technology but through products and services. Industrial and Commercial Bank of China (ICBC) is now the largest bank in the world, UnionPay is the largest credit card issuer, and AliPay is the largest third-party payment company. In the Peer-to-Peer (P2P) lending sector, CreditEase has come to dominate the world, Lend Academy (2013 December 03).

The rise in the number of Chinese FinTech is an interesting factor contributing to the growth of China's finance market. These fintech firms may not originate from traditional financial institutions but instead come from industries such as e-commerce. E-Commerce firms, such as Alibaba (阿里巴巴) and its Tao Bao ((淘宝) platform, have been experiencing rapid growth compared to American's platforms like eBay and Amazon (Morgan Stanley Blue Paper, 2014). E-commerce, with a combination of online and offline (OAO) operations, will be a potential key driver of the finance market in the future (Dahlman and Aubert, 2001). By creating stickiness to its users, platforms that offer third-part payments, e-commerce, logistic, trade, supply chain services will fuel growth of financial services such as insurance, lending, financing, wealth management, crowdfunding, credit rating, and other banking services. Given the market potential, it is hardly surprising that the number of incubators and accelerators has increased exponentially over the years. There were 1,600 incubators in China as of June 2015 (Johnston and Zhang, 2015). Out of these 1,600 incubators, over 600 of them were incubators of national level. Fintech and Blockchain companies are drawing increased attention from these incubators and venture capital in China.

With language as a barrier, it may be difficult to follow developments in China. For instance, online financial services such as Yu'E Bao (余额宝), Zhao Cai Bao (招财宝), Yu Le Bao (娱乐宝), Zhima Credit (芝麻信用), Qudian (趣店), ZhongAn (众安), JD (京东), Rong360 (融 360), Zhongtuobang (众托邦) are well-known in China, but may not be familiar to those from outside China. This chapter aims to bridge some of the knowledge gaps of Chinese finance.

There are a few interesting questions we hope to address: What are the potentials and pitfalls of the future developments of China, Asia and the world at large? Will the Chinese financial giants disrupt the global financial industry just as the Chinese industrial upsurge has disrupted other areas such as manufacturing, logistics and shipping? To understand the rise of Chinese finance, it is important to understand the concept of Dian Fu.

Dian Fu (颠覆) in Chinese means to disrupt, overturn, subvert and overthrow. In particular, the growth of Alibaba to a dominant position in the e-commerce world with its associated company Ant Financial is dominating the payments industry in China. When Alibaba first started, eBay had 60% of the market share in China. However, within a short period of time, eBay had to exit from the Chinese market.¹

Five categories of Dian Fu will be presented in this paper. We explain how the change in the Chinese environment has brought about great progress in its financial sector, by examining each category of Dian Fu. Next, we discuss possible scenarios of the future of Chinese finance. Finally, we conclude with a discussion of the strategies deployed by the Chinese government, such as employing the Bi-Lateral Swap Agreement for Renminbi (RMB), the setting up of Asia Infrastructure Investment Bank, adoption of “One Belt, One Road” (OBOR) policy and other related policies aimed at transforming the Chinese financial sector.

1.2 Dian Fu One: Dian Fu in the Equity Market

1.2.1 Rise of China's GDP

China has been experiencing a rise in its GDP since the 1970s, and has been growing exponentially since then. The share of Chinese GDP to world GDP has increased to 16% in r...

Table of contents

• Cover image
• Title page
• Table of Contents
• Copyright
• Dedication
• List of Contributors
• Preface
• Chapter 1: The Game of Dian Fu: The Rise of Chinese Finance
• Chapter 2: Balancing Innovation and Risks in Digital Financial Inclusion—Experiences of Ant Financial Services Group
• Chapter 3: Regulating FinTech in China: From Permissive to Balanced
• Chapter 4: Big Data Technology: Application and Cases
• Chapter 5: Trust Management in Mobile Platforms
• Chapter 6: Security Issues of In-Store Mobile Payment
• Chapter 7: Blockchain – From Public to Private
• Chapter 8: Blockchain 101: An Introduction to the Future
• Chapter 9: Betting Blockchain Will Change Everything – SEC and CFTC Regulation of Blockchain Technology
• Chapter 10: Global Financial Institutions 2.0
• Chapter 11: Open-Source Operational Risk: Should Public Blockchains Serve as Financial Market Infrastructures?
• Chapter 12: Blockchain Architectures for Electronic Exchange Reporting Requirements: EMIR, Dodd Frank, MiFID I/II, MiFIR, REMIT, Reg NMS and T2S
• Chapter 13: Mobile Technology: The New Banking Model Connecting Lending to the Social Network
• Chapter 14: Financial Inclusion, Digital Currency, and Mobile Technology
• Chapter 15: Digital Financial Inclusion in South East Asia
• Chapter 16: From the Ground Up: The Financial Inclusion Frontier
• Chapter 17: Indonesian Microfinance Institutions (MFI) Move to Technology – TBOP's Prodigy Experience
• Chapter 18: FinTech: Harnessing Innovation for Financial Inclusion
• Chapter 19: Inclusive Growth as Democratizing Productivity
• Chapter 20: Autonomous Finance
• Chapter 21: Inclusion or Exclusion? Trends in Robo-advisory for Financial Investment Services
• Chapter 22: How 3D Printing Will Change the Future of Borrowing Lending and Spending?
• Index