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Regulate online finance

Updated: 2014-03-27 08:51
( China Daily)

THE EXPLOSIVE GROWTH OF INTERNET finance in China must have caught everyone by surprise and leaves policymakers no choice but to come up with upgraded regulation as soon as possible.

However, to promote the healthy development of online financial services, as Premier Li Keqiang urged on Tuesday, the regulators must proceed fairly and cautiously, so as not to throw the baby out with the bath water.

The recent surge in China's online money-market funds was led by Yu'ebao, an investment product launched by e-commerce giant Alibaba last June, which has so far attracted more than 500 billion yuan ($81 billion) from tens of millions of small-pocket Internet users.

The unbelievable popularity of such online products can be largely explained by both the higher interest rates they offer than banks and their excellent accessibility and convenience compared with the traditional wealth management products offered by banks.

As Chinese consumers and leading domestic Internet companies have enthusiastically embraced online finance, such innovations have quickly transformed the landscape of the domestic financial industry. But it is happening at such a speed that regulators cannot confidently deem them safe, nor have traditional banks adequately prepared for them.

To prevent potential technical and systematic risks that such unprecedented and rapid accumulation of funds might entail, it is more than necessary for the regulators to adopt unified and effective supervision.

Yet, as the country's central bank took steps to refine rules covering online finance, its intention was being called into question, as new regulations may only protect traditional banks from new competitors.

Now, the latest call by Li for the healthy development of online finance should make clear the government's resolve to embrace this innovative trend in the age of Internet.

It is true that the regulators should always uphold their role in protecting financial stability and security, a task made increasingly difficult by emerging online finance. To that end, the regulators should not allow Internet companies to throw caution to the wind, especially given the concerns over cyber security.

And after outgrowing regulation for so long, Internet companies should understand that the watchdog's efficient supervision is essential to their healthy development in the long run.

On the other hand, the regulators do need to send a clear-cut signal to the traditional banks that their status quo will not be maintained at the cost of transformative innovations such as online finance.