Abstract

In China and around the world, the Internet is a major driver of economic growth. It has also brought about innovations in the financial sector — fintech — that are transforming how people use financial services. 

The Internet drives economic growth
The Internet accounts for a substantial proportion of global gross domestic product (GDP). In China, which has more people online than anywhere else in the world, the Internet economy has a larger share of domestic GDP than that of the United States, France and Germany. In 2013, the number of people in China with mobile smart devices nearly doubled and hundreds of millions of people are interacting via messaging apps like WeChat and Tencent’s QQ. While most businesses have responded to demand with sophisticated e-commerce strategies, they generally lag behind the United States and other industrial leaders. Substantial investments in digital infrastructure must be made for China to reach its cyber-economic potential.

To ensure it seizes the opportunities presented by the Internet, China unveiled its national Internet Plus policy in early 2015. Much of Internet Plus’s impact is expected to be in productivity gains. The Chinese government has also announced a new manufacturing strategy, Made in China 2025. In conjunction with Internet Plus, this strategy is designed to upgrade Chinese industry by using the Internet to coordinate logistics, commerce, and finance. These two initiatives will help China stimulate economic activity by fuelling productivity, innovation and consumption.

Technological innovation in financial services
The Internet is also driving new opportunities and challenges in the financial sector, including technological innovation in financial services (fintech). 

In China, the rapid rise in Internet and mobile usage over the recent years has fuelled the growth of fintech. Over 90 per cent of Internet users in China reportedly conduct mobile payments online, and over 60 per cent use mobile applications to make payments at restaurants and convenience stores. 

Manulife’s company in China, Manulife-Sinochem, has integrated mobile social and communications media into its business model with the launch of insurance sales through WeChat, China’s most popular messaging application. Using WeChat Claims, Manulife customers can purchase insurance and submit their medical claims online on a mobile device. Within two weeks of the program’s launch, 27,000 new policies had been sold.

Policy challenges and recommendations
China’s is well positioned to capitalize on technological innovations in the financial sector. At the same time, policy-makers and regulators face the challenge of creating technology-neutral regulations to supervise a dynamic and disruptive field. Existing approaches to policy and regulation must be constantly revisited and the boundaries of the regulatory environment redrawn. As well, ongoing investments must be made to enhance technological infrastructure, build digital financial skills and literacy, improve cybersecurity and harness the power of technology to drive improvements in the public sector.

Possible approaches to addressing these challenges include:
• Expanding Internet coverage and upgrading Internet-supporting infrastructure to improve broadband penetration and support cyber-economic growth.
• Enhancing financial skills and literacy to ensure students and employees gain and upgrade digital knowledge and capabilities.
• Addressing increased regulatory complexity through international collaboration on how to incorporate innovations in financial services with innovations in regulatory technology.
• Ensuring equal access to markets and transparency of rules and regulations by harmonizing regulations across national, state and municipal jurisdictions and ensuring they apply equally to foreign and domestic entities.
• Minimizing cybersecurity risks through international collaboration to develop common standards and shared cybersecurity frameworks and guidelines. Joint exercises and stress testing for cyber attacks could allow regulators to work together to identify weak points and design effective response strategies.
• Increasing the use and integration of the Internet to power enhanced efficiency and effectiveness of the public sector, which would improve service delivery and reduce costs.