Article: Blockchain and big data will lead to a revolutionization of China’s financial infrastructure

We should be careful about sticking to our traditional notion that China’s banking system is
antiquated and solely are focusing on the State-Owned Enterprises (SOEs’) and thus effectively not
available to the private companies in China. Related areas are moving with extreme speed –
quantum leap – which can alter the situation fast and position China suddenly at the forefront of
Fintech World-wide.


The Chinese banking system, which has been obsolete for decades, is starting to wake up thanks to China’s explosive E-commerce sector and its focus on big data. The private sector, which currently is responsible for two thirds of China’s economic output and the majority of the 250 million jobs created in the major cities, and who is responsible for nine tens of the export, have historically had poor support from the official Chinese financial sector. If addressed optimally, this affair can be
changed dramatically and would place China – which already is in the forefront – even more ahead
within the area of Fintech.

Despite the boom in building shopping malls over the last decade, the coverage rate is still only two
shopping centers for every one million inhabitants, which for comparison is only one tenth of the
equivalent coverage in the United States.

China for the same reason has instead in record time developed to become the World’s largest E-
commerce nation, and has already surpassed the E-commerce trade in the United States by value
with more than 80 per cent. By 2020 it is expected that the E-commerce volume in China will
surpass the combined E-commerce market in the United States, UK, Germany, Japan and France
combined! Due to the fact that the Chinese have not had a tradition of using credit cards, as in the
West and have more or less leapfrogged PCs’ and i-pads and moved directly to the usage of
smartphones, where they have obtained access to a wide variety of apps, have made China leading within the latest Fintech technologies. Digital settlements now make up two thirds of all paymentsin China!


The development is primarily driven by, what they in China refer to as the BAT suppliers, whichcovers over Baidu, Alibaba and Tencent (owns among others WeChat). Alibaba is at the momentleading (however with a falling market share from a high base) within E-commerce, whereasJD.COM is the largest online retailer in China.


China has around 750 million internet users and the number of citizens who used smartphones isaround 90% of the total number of internet users.According to China’s National Bureau of Statistics did the Chinese service sector exceed 50% of China’s GDP in 2015 which is the first time in history.


For approx. 425 million Chinese or 65% of the smartphone users, their smartphone acts as purse;again the largest penetration rate in the World. Mobile payments exceeded 38 billion yuan in 2016,which is more than 50 time the equivalent number in the United States – from vertically nothingjust five years ago!


Another area in which China is leading is within online lending. In China, the state-owned banksdominate the financial system, where they, however, historically have primarily focused on the stateowned companies (SOEs’), which they have had data to analyses. BATs dizzying success and thespread of Fintech solutions are filling this gap. Due to ‘big data analysis’ the BAT suppliers havebeen able to develop very rapidly a credit score card system i.e. been able to analyze private personspayment profiles and on this basis, been able to offer online lending. Historically the citizens ofChina have not had many possibilities to invest either. The options have been limited to a savingaccount with more or less no interest, they could invest in the Chinese volatile (for the same reason)stock exchange and/or by investing in property. This Alibaba and Tencent changed by introducingYu’e Boa (“leaftover treasure”) and Licaitong (WeChat), respectively and these platforms havealone attracted more than 700 billion yuan in less than two years, which Alibaba and Tencent nowhave under management.


What we have not yet grasped in the West is that the traditional state-owned banks will not sit idleand will come in the fight on market shares and especially the Chinese regulatory authorities is nowpressing for a change. Some guess that the BAT suppliers will have their market share of onlinelending reduced to around 20 per cent already by 2020 as the traditional banks will introduce similar solutions. One must assume that China’s central bank; People’s Bank of China (PBoC) willenforce the BAT suppliers to provide access to their big data databases. According to BloombergPBoC already have experimented with the idea of introducing their own blockchain cryptocurrency, which should be used to pay for normal groceries to larger infrastructure investments.This crypto currency by using the blockchain technology will allow PBoC an instrument to monitorrisks in the financial system. By using blockchain you will not be able to tamper with data and willthus provide PBoC with a full “transaction ledger”, which will enable the authorities to addressmore effectively money laundering, corruption and capital flight. By using blockchain will allowPBoC a complete real-time instrument to manage China’s monetary policy. This and the SOE banksentrance into the market will revolutionize the entire Chinese financial system from beingantiquated to be in the absolute forefront only a few years from now.

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Hans Henrik Pontoppidan
Secretary General, DCBF 
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Danish-Chinese Business Forum

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The views expressed of the authors do not necessarily represent or reflect the views of DCBF.