Dual Circulation’s Implementation Necessitates A Crackdown on Fintech

Image: Jack Ma criticizes the Chinese state’s regulation of finance technology firms at the Bund Summit on October 24, a little over a week ahead of the suspension of Ant Group’s IPO. (Image Source: Caixin).


Rumors swirled about a crackdown on the Chinese e-commerce giant Alibaba following an incendiary speech given by its founder Jack Ma in late October, which criticized global banking standards and the Chinese regulatory system (TechNode, November 9). The suspension on November 3 of the IPO for Alibaba’s financial technology (fintech) arm Ant Group—valued at an estimated record-breaking $34.5 billion—was consequently shocking, but not entirely unexpected (Asia Times, November 4). Financial regulators had been working on a regulatory framework for fintech for some time, and had already submitted policy proposals to the government, one unnamed source told the economic paper Caixin: “It was only a matter of timing (for them to) make up their minds” (Caixin, November 9).

The Ant IPO suspension represents a culmination of the Chinese government’s efforts to crack down on digital financial services providers, once seen as filling an important gap in China’s financial system because they underwrote consumer loans to small businesses and individuals that were often overlooked by traditional banks. Since the 2015 stock-market crash, the Chinese government has sought to exert more control over financial technology platforms such as Ant, which are now viewed as a destabilizing liability amid fears of rising default risks and weak banks amid a heavily debt-laden post-pandemic economy.

Xi Jinping’s Theory of Dual Circulation

As leaders of the People’s Republic of China (PRC) sought to guide the economy’s recovery from COVID-19, high level messaging focused on a new dual circulation strategy (DCS) (双循环, shuangxunhuan), seen by analysts as an articulation of China’s strategic approach towards adapting to an increasingly hostile international environment. In short, the DCS represents a two-pronged development strategy which focuses on shoring up the strengths and weaknesses of the domestic market’s “internal circulation” (国内循环) while also balancing against structural shocks in the “international circulation”(国际循环) of the global economy.

The clearest articulation of the DCS comes from a speech given by PRC President and CCP General Secretary Xi Jinping at a meeting of the Central Financial and Economic Affairs Commission in April, which was published in the CCP’s leading political theory journal Qiushi (求是) on October 31. It encompasses a focus on shoring up domestic consumption (especially of China’s growing middle class) as a means of driving overall economic growth; stabilizing key production and supply chains; continuing the urbanization of rural areas; developing the science and technology community in a manner “consistent with China’s national conditions;” and “raising the banner of ecological civilization” through sustainable and environmentally conscious development (Qiushi, October 31).

Some observers have viewed DCS as a defensive response to the U.S.’s decoupling strategy, but it is also an outgrowth of China’s increased emphasis on self-sufficiency (自主能力, zizhu nengli) that motivated policies such as “Made in China 2025” and “China Standards 2035” and predates the U.S.-China trade war by several years (SCMP, November 19). China analysts Jude Blanchette and Andrew Polk have characterized dual circulation as fundamentally being “a strategy to fortify China’s economic resilience in the face of global economic undulations and a general retreat from globalization among Western democracies.” It has been framed as a logical extension of the 2015 “supply side structural reform” (供给侧结构性改革, gongjice jiegouxing gaige) framework that is now enshrined in China’s constitution, and which motivated a financial de-risking campaign that has dominated the economic policy agenda since 2018.[1]

DCS was first unveiled to the public at a May 14 meeting of China’s 25-member Politburo (Xinhua, May 14) The theory was given a prominent role at the May meetings of the “Two Sessions”—annual parliamentary meetings of the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), which typically take place in March but were postponed due to the coronavirus pandemic, and the October Fifth Plenum meeting which set the policy guidelines for China’s 14th Five Year Plan (CGTN: May 29, October 30). Xi doubled down on the policy in a July 21 symposium with Chinese entrepreneurs, saying, “…we must gradually form a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles mutually promoting each other” (Xinhua, July 21). At the same meeting, Xi also emphasized the role of China’s “patriotic entrepreneurs” (爱国企业家, aiguo qiyejia) in driving the nation’s economic recovery, and held up the example of past businessmen such as Zhang Jian (张謇), Lu Zuofu (卢作孚), and Rong Yiren (荣毅仁) as model entrepreneurs who served the state well (Xinhua, July 21).[2]

Image: Xi Jinping chairs a symposium on pandemic recovery with private entrepreneurs in Beijing on July 21. At the meeting, Xi urged efforts to spur the vitality of market entities while also calling for “patriotic entrepreneurs” to take on a larger role and achieve greater development. (Image Source: Xinhua).

Further signs that the party was tightening its control over the private sector were given in September, when the CCP’s released its “Opinions Concerning Strengthening New Era United Front Work In the Private Economy” (关于加强新时代民营经济统战工作的意见, Guanyu Jiaqiang Xinshidai Minying Jingji Tongzhan Gongzuo de Yijian). This document laid out directives for CCP organs to take on closer and more direct supervision of China’s private sector by bolstering the role of the party in private enterprise and recruiting private economic actors into the CCP. It reflected the CCP leadership’s prioritization of “harnessing the potential dynamism and innovative capabilities of private industry” to tackle economic issues laid bare by the pandemic (China Brief, September 28).

2020: New Laws Target An Underregulated Fintech Sector

P2P crackdown signals a changing regulatory environment

Until recently, Chinese technology companies such as Alibaba and Tencent had grown under a permissive regulatory atmosphere. China’s relatively late shift away from a cash-driven economy was brought about by the rise of digital payment platforms such as Alipay and Tencent’s WeChat Pay, leapfrogging over the credit and debit revolution that defined advanced economies in the last century.  By 2016, China’s digital payments and peer-to-peer (P2P) lending markets were the largest in the world, and private fintech companies had roughly as many clients as the country’s top banks (Citi GPS, March 2016).

By 2018, Chinese mobile payments had an estimated 890 million users. E-commerce giants Alibaba and Tencent had a combined market share of over 90 percent, allowing their users to make P2P transactions, send “red packets” of virtual cash, and pay for goods and services entirely online (SCMP, August 10, 2018). In the course of a few years, these two internet finance firms had created an alternative payments model that effectively sidelined banks from the consumer payments system, leapfrogging past Western economies’ dependence on credit cards in favor of a near-cashless digitized payments ecosystem.

The rapid development of China’s digital finance system was marked with concern by economic regulators. In 2015, the China Banking and Insurance Regulatory Commission (CBIRC) began strengthening regulations on lenders platforms outside of the traditional banking system, and passed guidelines in the summer of 2016 mandating that P2P lenders fulfill lending requirements within 12 months or risk being shut down. In 2018, over 150 online lending platforms defaulted amid a national P2P rectification campaign (TechNode, August 2, 2018). This November, Chinese authorities announced that the number of P2P lending platforms had fallen to zero from a 2017 peak of over 5,000—notwithstanding the continued operation of massive online microlending platforms operated by Ant Group and Tencent. Still the announcement seemed intended to mark regulators triumph over the risky shadow banking sector (Xinhua, November 28).

Last August, the People’s Bank of China (PBOC)—which serves as both a state bank and a financial regulatory authority—released a three year Fintech Development Plan (2019-2021) laying out a development plan to “realize the deep integration and coordinated development of technology and finance,” signaling plans for further regulatory coordination on fintech (People Online, August 23, 2019; Caixin, August 24, 2019). This fall, China’s economic and financial authorities issued a spate of new regulations aimed at controlling and de-risking the fintech industry that aligned with the DCS’s mandate for renewed focus on science and technology and its call to bring private enterprise more directly under the control of the state.

Micro-loan regulations target Ant

On November 3, the PBOC and CBIRC jointly released the “(Draft) Provisional Measures on Online Micro-loan Operations” (网络小额贷款业务管理暂行办法(征求意见稿) wangluo xiao e daikuan yewu guanli zhanxing banfa (zhengqiu yijian gao)) (CBRC, November 3; China Banking News, November 3). The new rules placed the oversight of online microlending companies directly under the supervision of national regulators; capped the maximum limit of loans to individuals and businesses; raised requirements for online platforms to contribute a larger share of loans and dramatically increased compliance costs. The publication of this document was heralded by a meeting between Chinese financial regulators and top executives of Ant Group, who reportedly discussed the “health and stability of the financial sector,” with Ant agreeing to implement the meeting’s opinions in-depth (SCMP, November 3).

Ant representatives’ show of cooperation with government regulators was not enough. By the end of the day, the Shanghai Stock Exchange had scuttled Ant’s planned IPO after arguing that the new micro-loan regulations meant it was no longer in compliance with listing requirements. On November 7, the PBOC published its annual China Financial Stability Report (中国金融稳定报告(2020), Zhongguo jinrong wending baogao) which signaled the prioritization of stricter regulation of the fintech sector, saying that Chinese financial regulators would “comprehensively upgrade regulatory capabilities” of fintech companies (China Banking News, November 9).

Anti-trust laws expanded to definitively cover fintech

On November 10, the State Administration for Market Regulation (SAMR) issued the “(Draft) Antitrust Guidelines for the [Internet] Platform Economy” (关于平台经济领域的反垄断指南 (征求意见稿), guanyu pingtai jingji lingyu de fan longduan zhinan (zhengqiu yijian gao)), explicitly applying new antitrust regulation under a January Anti-Monopoly Law update to the fintech sector for the first time. This marked a major sea change in Chinese regulators’ willingness to enforce antitrust claims over its tech sector behemoths (SAMR, November 10; China Digital Times, November 10). As recently as August, the semi-independent economic newspaper Caixin had reported that few Chinese internet companies were investigated even after complaints alleging monopolistic behavior were filed: between 2012 and 2019,  out of 46 unfair competition cases filed, none were subjected to even cursory investigations (Caixin, August 14).

A day after the new antitrust regulations were published, CBIRC vice chairman Liang Tao made the Chinese government’s new attitudes on fintech clear: speaking at the 21st Century Annual Finance Summit of Asia, Liang said that fintech companies should be regulated like banks (SCMP, November 11). “Special attention must be paid to the new risks brought about by the digital transformation [of financial services].” Liang said. “This is especially true with cyber security, data protection and market monopoly” (Ibid.)  Speaking at the Caixin Summit on November 15, Xiao Yuanqi, chief risk officer of the CBIRC, also seemed to implicitly warn his listeners that no company in China was too big to fail, saying that “financial innovation shouldn’t form oligopolies, reap excessive returns, and harm public interests” (Caixin, November 15; The Standard, November 16).


China’s rapid construction of a regulatory framework for fintech culminated this month in a blizzard of new regulations and the surprise IPO suspension of one of the nation’s most valuable companies. Two weeks ago, the Chinese government announced the creation of a new task force to crack down on antitrust enforcement, backed by 17 central government agencies that included the triumvirate financial watchdogs PBOC, CBIRC, and the China Securities Regulatory Commission (CSRC), and led by the powerful SAMR (Caixin, November 20). The creation of this new ministry-level task force demonstrates the seriousness with which the central government is approaching its antitrust crackdown, specifically with regards to fintech.

The speed at which this happened underscores the continued difficulties of doing business that China’s private entrepreneurs face amid a rapidly changing regulatory regime which seems designed to promote “rule by law” (of the party) rather than the more predictable “rule of law” norms that guide governance in liberal western states. Jude Blanchette has called the shift in Chinese state capitalism under Xi Jinping “CCP Inc.,” and described it as encompassing regulatory and policy shifts which have expanded the state’s role both as an active investor in and regulator of a hybrid political economy, “wherein overall political guidance and control is nested within a complex system of industrial planning/guidance and market mechanisms” (China Leadership Monitor, December 1). As the recent experience of Ant Group shows, under this model, no private enterprise is too big to fail, and even the most powerful and innovative firms can still be made to serve the state.


[1] See: Jude Blanchette and Andres Polk, “Dual Circulation and China’s New Hedged Integration Strategy,” CSIS Commentary, August 24, 2020, https://www.csis.org/analysis/dual-circulation-and-chinas-new-hedged-integration-strategy.

[2] Zhang Jian’s name was recently cited again following a series of events in early November that consolidated the CCP’s control over private entrepreneurs; during a public tour, Xi explicitly praised the Qing-era industrialist, saying: “Zhang ran businesses that benefited the nation, developed education, and took part in public welfare activities…[Xi] said Zhang’s work had profound significance in promoting local public welfare” (Xinhua, November 13). This praise could be seen in explicit contrast to the activities of modern entrepreneurs like Jack Ma, who, despite overt displays of philanthropy, gained their wealth through businesses which are now viewed as destabilizing to China’s economic security.