China's Silicon Valley becoming Internet finance breeding ground(3)

In a parallel development, more Chinese consumers are ditching brick-and-mortar retailers to shop at online stores. Online shopping transactions rose 66.5 percent from the previous year to 1.25 trillion yuan in 2012, accounting for 6 percent of total social retailing. Analysts predict online shopping will account for an even greater share of total consumer spending in the future.

The trend has also fueled the development of online payment services, another crucial segment of Internet-based finance. So far, China's central bank has issued third-party payment licenses to 250 companies. Statistics from the Payment and Clearing Association of China show that online-payment transactions in the country hit 6.89 trillion yuan last year and are likely to more than double in 2015.

A number of online retailers have waded into Internet-based finance. Chinese e-commerce giant Alibaba allows consumers to invest their spare cash into money market funds through its Alipay online payment service. The product, called Yu'ebao, or "Leftover Treasure," has netted 130 billion yuan so far, making the fund's management firm, Tianhong Fund, the country's largest fund management company.

China's Internet search giant Baidu has also announced that it will launch an online wealth management product with the Huaxia Fund Management Company before the end of this year, with an annualized return of 8 percent, higher than the 5-percent return of Alipay's Yu'ebao.

China's largest business-to-consumer online retailer Jing Dong (Formerly known as 360buy) has established micro-loan firms to provide financing for suppliers of the company's online shopping platform.

Analysts say such moves will fill in a territory that banks are not willing to enter, given their low risk tolerance for defaults and non-performing loans. Meanwhile, transparency over the Internet improves the efficiency of matching supply and demand for loans.

"China is never short of entrepreneurs, and we have a lot of spare money, but we have trouble bringing investors and cash-starved companies together," said Angel Crunch's Lan.