China’s tech hubs freeze registration of new internet finance companies

(Illustration by Tech in Asia’s Andre Gunawan)

China’s regulators seem to be applying the brakes to the country’s fast-moving internet finance sector, with numerous Chinese media sources reporting that Beijing, Shanghai, and Shenzhen have all stopped registering new internet finance companies. For example, authorities should stop registering all companies described with terms like “investment, assets, capital, shares, finance management, lease financing” and more, according to a document uploaded to the web and discovered by reporters.

To be clear, this shouldn’t have any effect on the many Chinese internet finance companies already registered in these cities. Rather, it seems to be a block on registering new companies, likely designed to slow down the growth of the market and give officials time to assess what sort of regulation might be needed. In fact, the change comes just a couple of weeks after authorities released draft legislation aimed at regulating China’s P2P lending industry for public comment. It may be that authorities want to stop entrepreneurs from founding any new fintech companies until they’ve decided how to regulate the industry.

Of course, from a consumer perspective, there are still tons of internet finance companies to choose from. China’s internet finance sector has exploded over the past several years. In the past month alone, we’ve seen nearly US$1 billion in investment flow into the sector according to Tech in Asia data (although to be fair, most of that was due to Lu.com’s massive series B). Hundreds of internet finance startups raised money in 2015.

In the long-term, stricter regulation and safer, slower growth of this white-hot sector is probably a good thing. But the suspension of registration is rough news for any entrepreneurs out there who had been hoping to start new internet finance companies soon. At present, it should be possible to register new fintech companies in cities other than Beijing, Shanghai, and Shenzhen. But those are China’s three hottest tech hubs, and even if other cities don’t follow their lead in freezing internet finance company registrations (which they probably will), sourcing talent could be a problem.