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China’s Fintech Revolution—The Ledger

A Chinese flag flies in front of the People's Bank of China headquarters in Beijing, China. On Monday, the central bank said it is "almost ready" to release a digital currency that has been five years in development.A Chinese flag flies in front of the People's Bank of China headquarters in Beijing, China. On Monday, the central bank said it is "almost ready" to release a digital currency that has been five years in development.
A Chinese flag flies in front of the People's Bank of China headquarters in Beijing, China. On Monday, the central bank said it is "almost ready" to release a digital currency that has been five years in development.Giulia Marchi—Bloomberg via Getty Images

Last week we discussed the roiling Sino-American trade war and the shock depreciation of China's currency. Today we're going to take a deeper look at the status of the financial technology industry, or fintech, within China, which was the subject of a breakfast roundtable Fortune hosted at its inaugural Brainstorm Finance conference earlier this year.

Early on during that morning session, our featured speakers found a point of agreement: the Middle Kingdom is far more advanced than just about any other nation when it comes to financial tech. "If you want to see the future of fintech, just go to China," said Edith Yeung, managing partner of Proof of Capital, a blockchain-focused investment firm. She cited Alibaba-spinoff Ant Financial and Tencent's WeChat as paragons of digital banking and payments.

Zhou Jing, president of Pintec, a Chinese fintech startup, explained the Chinese industry's rise as hinging on the proliferation of software applications and mobile phones. "In the past people didn’t have smartphones and they didn't have access, if they lived far away, to information or services that are readily available in the U.S.," Zhou said.

"Today, without opening a bank branch you can reach out to customers who live in Tibet and faraway places you've never heard of," Zhou continued. "You can provide retail financial products to the majority of the population in China at marginal cost, or close to zero."

Daqing "David" Ye, CEO, chairman, and cofounder of Rong360, another Chinese fintech startup, discussed some of the challenges that attend operating in such a new market. It's not simple to get new buyers and sellers to trust one another, he said.

Responding to a question about a controversy over Rong360 hosting predatory lenders on its loan-originating marketplace, Ye said his company has been tackling the issue head-on. "We have the responsibility to ensure the accountability of products on our platform—they have to obey the rules and regulations," he said, noting that the company had been "tightening up" its market.

Ye also highlighted the importance of consumer education. "Keep in mind, for many Chinese consumers, this is the first time in their whole lives they want to use credit or buy insurance. We need to help people understand what's a compound interest rate, what is APR," or annual percentage rate, meaning the interest due on loans. "We're working with financial service providers to make sure they follow good, best practices and can't do bait-and-switch marketing," he said.

With a surging consumer base and little entrenched infrastructure to stand in the way, China has been leapfrogging ahead technologically. The country has been experimenting with new ideas, such as its controversial social credit system, which grades people based on their behavior and either restricts or green-lights their access to services. The latest impending achievement: On Monday, China's central bank said it was "almost ready" to release a digital currency of its own after five years of development.

Will China-coin represent the leading edge of finance? We'll have to wait for more details to find out. But, as Yeung pointed out during the panel discussion, the Chinese government's interest in blockchain technology appears to be driven by a desire to co-opt and control money; it cares less about the vision of decentralization promoted by so many cryptocurrency boosters.

"I'm very bullish on China," Yeung said, before clarifying, "I'm bullish on the people, not necessarily the government."

Robert Hackett | @rhhackett | [email protected]

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The Global Collapse in Interest Rates May be Setting Investors Up for a Crash by Larry Light

DECENTRALIZED NEWS

To the Moon… The Fed plans faster payments. Former Fed heads are pro independence. NYSE preps for tech upgrade. Mastercard buys Danish payments platform Nets for $3 billion. Fidelity plans to use Blockstream’s big Bitcoin mines. Kik fights SEC. Visa is worth a lot of money. Ripple is in a deal-making mood. Ex-Coinbase tech chief is behind Nakamoto.com?

…Rekt. Western Union to cut 10% of staff. SEC delays Bitcoin ETF decisions. U.S. says China manipulates currency. Malaysia files charges against Goldman, while Goldman gets into subprime lending with Apple Card. Traders lose bonuses. UBS hits rich clients with negative interest rates. AT&T insiders were bribed to unlock phones. Online lender GreenSky tumbles. “Snake oil crypto.”

BUBBLE-O-METER

$13,971

That’s the short-term price target a technical analysis team at Goldman Sachs favors for Bitcoin, according to a slide in a Sunday presentation for institutional clients, published by CoinDesk. A single Bitcoin is currently valued at roughly $11,400. Per the bank: “Any such retracement from $12,916-$13,971 should be viewed as an opportunity to buy on weakness as long as it doesn’t retrace further than the $9,084 low.”

MEMES AND MUMBLES

“Democratic People’s Republic of Korea cyber actors…raise money for its WMD (weapons of mass destruction) programmes, with total proceeds to date estimated at up to two billion US dollars”

So says a confidential United Nations report, as reported by Reuters. The Hermit Kingdom has “used cyberspace to launch increasingly sophisticated attacks to steal funds from financial institutions and cryptocurrency exchanges to generate income,” say the authors of the report. 

FOMO NO MO’

In space no one can hear you…pay? In the world of Star Trek, money has been rendered obsolete. So National Public Radio’s Marketplace podcast asks, if not wealth, what motives people to work in this fictional universe? Manu Saadia, author of Trekonomics (a book I reviewed for Fortune in 2016), says the prevailing driver is “prestige and the admiration of your peers….justice seems to be their most profound concern.”

A lot of science fiction shows present a darkly dystopian view of the future, where humans battle for limited resources, starkly divided between the haves and have-nots. But some views of the future are far more utopian. In “Star Trek,” members of the federation live in a post-money society: Everyone has the basics, nobody has to work, and ordering what you need is as easy as telling a replicator, “Tea. Earl Grey. Hot.”

As Trekkies get excited for “Picard,” the latest “Star Trek” franchise, we thought we’d dive deeper on how that society works. It’s the latest in our ongoing series exploring how tech and the economy are portrayed in science fiction.