In this article series (3 articles), we will dive into the fastest growing tech industries in China, trying to understand main questions we all constantly ask: Why, What, Who, When, How come ?
Part 1 - Fintech and Edtech
Part 2 - Artificial Intelligence and Healthtech
Part 3 - Internet Of Things and Social Media
Fintech (Financial Technology) is a line of businesses built with the purpose to facilitate the financial system by applying technology to services. Today, Fintech companies are competing with banks in several areas of the financial sector to sell their services to customers.
From lending and asset management services to payments and transactions, Fintech is transforming world's financial services. It’s disrupting big, established financial institutions. China's Fintech industry is no exception. Although at an early stage, it is quickly taking over the world’s leading Fintech market: London.
In 2015, out of the total value of $22.3 billion of Global Fintech investment, 45 percent, the biggest share was invested by China.
Its VC-backed Fintech investment went from around $600 million in 2014 to almost $2.7 billion in 2015.
Chinese consumers are increasingly adopting Fintech services such as online banking, money transfers, payments, crowdfunding, lending, investing, and insurance.
China’s peer-to-peer lending market currently stands as the largest in the world with transaction volume up to RMB 500 million (US$74.7 million).
The country’s rapid economic growth, financial liberalization, highly developed Internet and e-commerce sector, open and supportive regulatory environment and growing demand for alternative finance solutions allowed Chinese Fintech industry to rapidly spread in the last few years.
Few click away, multiple financial services are at consumer's disposal from wealth management, peer to peer lending, financial comparison services to insurance and loans. It is convenient and easily accessible.
These services are reachable in remote corners of the country where banking system is still traditional.
Due to the 2008 global economic crisis which led to tighter lending regulations , smaller businesses were struggling to get a loan through traditional channels. Fintech increased access to more diverse funding options. These include merchant, e‑commerce, invoice, online supply chain and online trade finance.
However, the industry, being at a young stage, has seen some cases of financial irregularity too, such as shadow banking actions and fraud especially in peer to peer lending businesses.
Chinese government is closely supervising online payments. Draft of set of rules for P2P lenders and non-bank online payment providers was recently published by China Banking Regulatory Commission.
This year, the Standing Committee proposed to introduce the Network Security Law in order to increase the safety of the users and to improve the quality of services within the Fintech industry.
Furthermore, the 13th Five-Year Special Plan in finance, will be on the construction of a financial market and building of a finance system that is multi-tiered, diversified, fully-functional and flexible.
Baidu, Alibaba and Tencent have dived into a range of online finance businesses and applications. They are also investing in Chinese Fintech startups.
Banks are also building their own online platforms to survive the gradual changing dynamics of the financial industry. Many financial institutions are investing in startups. For example, Accenture is managing an accelerator lab in Hong Kong that hosts 20 banks, including China CITIC Bank International and China Construction Bank (Asia). This allows them to be introduced to cutting edge ideas and innovations in the industry.
Even in its early stage, the Fintech market is largely dominated by B series startups or above, and several unicorns backed by big companies. Big companies prefer startups which have passed the initial stages of development, expanded their market reach and attracted investors.
Fintech Unicorns Worth $1 billion:
Fintech Unicorns Worth Above $5 billion:
China’s thriving population and an education centric mindset are paving the way with myriad options for teaching-learning interface in the Education industry. China's technological prowess has created the perfect environment for the digitization of education . Edtech market is witnessing a boom here, competing with the US market.
Education technology encompasses everything, from simple use of computers to submission of homework online, entire online degree platforms, informal mobile learning applications, gamification or virtual reality techniques.
Edtech investments grew from $137 million to $1300 million (from 2013 to 2015), and are expected to rise further. The Ministry of Education concluded a ten year plan which included the allocation of 10% of the annual education expenditure in education digitization (approximately $23.5 billion based on 2010).
A huge emphasis is put on research and development. More focus on Science, Technology, Engineering, Mathematics (STEM) is on top priority list.
Currently, China’s market education size is RMB 1.6 trillion ($267billion), with 25-33% of family's income spent on education. The K-12 education system in China is the largest in the world: over 230 million students, 12 million teachers.
Chinese government is allocating 4% of Chinese GDP to education annually. This rapidly growing need for education for all is also giving ample space for its digitization.
The industry maybe in the nascent stage but it is offering more scope for more innovation, slowly inching towards gaining a considerable share of the education market. Currently, the consumer-facing learning market is rich, tech-savvy, and globally exposed. It is accepting more experimentation.
Learning through Edtech is engaging with informal teaching style instead of repetition or memorization learning. The immersive content (use of games, virtual reality, etc) is making learning fun. It is cutting costs and enabling new levels of standardization and democratized access.
China’s education market is primarily divided into three parts- K-12 education (Kindergarten -12), English training, and overseas study. While Edtech in the form of digitalised classrooms in many schools have been incorporated in K-12 education, Edtech mobile learning products are focussing on English language learning.
Growing market of Edtech for English language learning: The globalizing of the country has led to a steep increase in the demand for English language learning. The English-training market value in China is for around $4.5 billion and growing at a rate of 12-15% in coming years.
English proficiency is a testing requirement in almost all schools here and lack of local English teachers gives an opportunity for Edtech language English language learning products to fill in.
Edtech expands in Overseas education test prep market: Another growing EdTech market is for overseas test preparations. Many Chinese students are required to pass a number of entrance exams to go abroad to study.
The number of Chinese students at British universities has increased by an average of 13% annually for the last five years. There are now more than 250,000 Chinese college students in the USA among others. However, there is lack of local guidance and mentoring for students. Edtech test prep products are specially designed to cater to these needs.
Ed Tech industry is heating up and is likely to grow more. Ed-Tech companies in China raised $321M in equity investments for 26 deals in 2014. In terms of funding, this means an increase of 400% with 18% hike in deals year-over-year. Three of the top 10 world biggest Edtech companies are based in China.
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