Hainan home for Internet-sourced financing(2)

Positive impact

Innovations in China's Internet finance are vital to strengthening the country's financial system.

Various products have enriched the existing financial tools and opened up more territory for those that could not gain financial support or rarely enjoyed superior financial services.

When conventional financial channels decline the capital demands from small-sized enterprises, mini-loans and P2P lending are helpful alternatives.

But there are both challenges and opportunities ahead for sustainable development.

The first hurdle is how the innovation of Internet finance can reach a higher level.

Despite its advantages in attracting customers and funds, the most representative product of Yu'E Bao, for example, is based on the money market, mutual funds and large contracted deposits with a financial institution.

In essence, it is simply the extension of resource allocation at financial institutions.

Some online wealth management products offer super yields to attract customers that are subsidized by the company's own revenue.

That is not sustainable and Internet corporations should be concerned about how to get core competence in financial resource allocation.

Although some Internet finance corporations are involved in direct finance by facilitating connections between savers and lenders with advanced information technology, the challenge is that the localization of such services departs from its nature.

Whether P2P or crowd-funding, the original innovation is to match fund suppliers with demands directly by using online big data and cloud computing. But China's social credit system is still a work in process, and most Internet funding corporations create their own fund pools, which makes them bank-like operations.

As well, some illegal funding raising or fraudulent operations makes self-discipline and governmental regulation more urgent than ever.

The prosperity of Internet finance partly relies on the reform of finance, such as interest rate liberalization.

It does make the financial system more inclusive and effective by injecting diversity and competition.

The industry should not be satisfied by short-term achievements and profits. It should prepare for the challenges in future development.