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China's Fintech Market Sputters Amid Tighter Regulations

Global Fintech Report Q1 2019

China’s crackdown on online lending has caused a dramatic decline in venture capital-backed funding for financial technology in Asia, which has dropped below $1 billion for the first time in the past five quarters, according to a new global fintech report from CB Insights.

The New York-based big data company found that fintech investment in Asia plummeted from more than $2.6 billion in the fourth quarter of 2018 to $875 million, a 67% decline. During that same time, fintech deals in China slipped from 49 to 29 and fintech funding fell by nearly 90% from the prior quarter to $192 million.

With tighter regulations hamstringing many lenders in China, India appears to be emerging as a top fintech market in Asia. India matched China’s fintech deals this past quarter and surpassed its fintech funding by nearly $100 million.  

“India is a jurisdiction where the sector is catching up. Given their currency inflation and issues that have plagued India over the last two years, everyone is embracing this notion that digital assets, fintech, that’s something better than what they’ve had,” Huhnsik Chung, a partner at Stroock & Stroock & Lavan in New York who has clients in the fintech industry, said in an interview on Wednesday.

Chinese authorities announced in February that they were investigating hundreds of online or peer-to-peer lenders and had seized $1.5 billion in assets following widespread complaints about corruption within the industry, according to a report from The Associated Press.

Chung added he believes China is tightening the regulatory reins on lenders as it seeks to stem what has been a “tremendous outflow of money into Hong Kong and Singapore”.

“The monetary policies are geared toward stopping it,” he said.

Chung also noted that Asian regulators “are not recognising digital ownership rights as opposed to the traditional certificates representing ownership of asset-backed paper”, unlike the U.S., which has comparatively robust cryptocurrency regulations.

“The view that the U.S. is falling behind the rest of the world, that clearly may not be the case,” he said.

During the first quarter of 2019, the U.S. saw $3.3 billion in fintech funding, compared with $1.7 billion in Europe and $874 million in Asia, according to the CB Insights report. Fintech deals in the U.S. totalled 170, a rebound after three consecutive quarters of declines.

In Europe, which topped Asia in fintech funding for the first time in the past five quarters, the U.K. emerged as the star market with investments of $645 million in 42 deals. Germany followed the U.K. with $588 million in 15 deals.

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