This Month in Fintech - China (March’ 23)

Hi fintech friends,

What a March, right?!

In recent years, the Chinese government has been tightening its control over the country's financial systems and technology industry. This has been particularly evident in the government's crackdown on large companies like Alibaba and Tencent. Notably, this past March we saw the establishment of the National Financial Regulatory Administration (NFRA) as part of the recently announced financial reforms, along with the controversy in China surrounding the TikTok's CEO's testimony before the US Congress.

The Chinese government's efforts to regulate these industries are driven by concerns over both critical data vital to national security and overall societal stability. This has created challenges for Chinese techs, particularly fintechs. We sat down with Edith Yeung, the general partner of Race Capital, to get her take on this topic.

On NFRA, Edith believes this goes beyond China’s past oversight of the financial sector. It signals the government’s intention to consolidate power and centralize all regulations. Her takeaway: “All Chinese companies will need to have Government Relations (GRs)!”

Edith thinks this is going to be a tough time for Chinese fintechs that are looking for funding. A handful of American VCs that were actively investing in China have started to visit China to assess the recent changes, but many will pause their investments until they gain more clarity.

I also chatted with Edith about Hong Kong’s efforts to be the new hub for web3/crypto startups despite the Chinese government’s strong crypto ban in the past. Edith thinks Hong Kong will not do anything that the central government does not approve of, but this will not stop HK’s ambition for being the next Web3 hub. “I am still bullish about HK!” Edith says.

After the interview, I saw the news that Chinese banks have been in touch with crypto firms in Hong Kong over the past couple of months. According to "people with knowledge of the matter,” several Chinese banks, including Shanghai Pudong Development Bank, Bank of Communications Co., and Bank of China Ltd., have either started offering banking services to crypto firms in Hong Kong or made inquiries with crypto firms, which adds to the signs that Hong Kong’s web3/crypto ambition has Beijing’s secret backing; Some even speculate that China might see Hong Kong as an experiment to evaluate crypto regulations and policies.

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