Does Fintech Promote Entrepreneurship? Evidence from China

Fintech platforms have received praise for lifting up small companies, and criticism for strangling the market with anti-competitive behavior. In a recent paper, we argue there is some truth to both. Focusing on China, we find tentative evidence that services provided by Ant Group, an affiliate of e-commerce giant Alibaba and operator of the world’s largest mobile payment platform Alipay, can help entrepreneurs. At the same time, the company and a host of other internet finance platforms in China had to undergo significant restructuring over the last two years to appease regulators.

Supporters of digital finance platforms in China started the new year with a sigh of relief. Guo Shuqing, Chairman of the China Banking and Insurance Regulatory Commission (CBIRC) told reporters on January 9 that the special campaign to rectify the financial business of Ant Group and 13 other internet platform companies is basically complete. The 2-year-long campaign was launched just two days before Ant’s intended $37 billion blockbuster initial public offering in late 2020.

Since then, Ant Group has undergone a thorough restructuring process to please financial supervisors and competition authorities. The company had to take three major steps. First, Ant had to register as a Financial Holding Company, subject to capital requirements and tougher regulatory oversight by the PBOC. Financial services providers that are part of Ant Group are now supervised directly by relevant supervisory agencies (for banking, insurance, securities). Second, Ant’s small lending business was thoroughly redesigned. It split up its highly popular and lucrative Huabei and Jiebei loan products, keeping only a small fraction of the original loans balance under the newly formed Chongqing Ant Consumer Finance Co. Ltd. The relevant capital adequacy requirements put Ant on the same footing as commercial banks, in line with Basel III standards. Ant will no longer participate in capital or risk management of loans offered by third parties and only collect platform fees from external credit providers. Third, competition authorities cut internal ties within Jack Ma’s business empire that were deemed overly cozy or anti-competitive. The e-commerce platform of Alibaba must now accept digital payments from Alipay’s main competitor WechatPay, Ant’s top executives have quit Alibaba’s partnership structure, Jack Ma has ceded control over the Executive Board, and personal credit information is now in the hands of a newly licensed credit reporting agency where Ant is only a minority shareholder.

Many commentators have interpreted the crackdown on Ant and other internet platforms as an attack by the ruling Communist Party on private enterprise in China. The Party slogan of reigning in the “disorderly expansion of capital” might sound too Marxist for comfort to liberal ears, but to date there is no evidence that Beijing has actually aimed to turn internet platforms into state-owned enterprises or reduce the private sector share of the Chinese economy.

Rather, top policymakers have supported domestic internet platforms throughout the 2010s. Most recently, at the Central Economic Work Conference in December, which set out the country’s 2023 economic policy agenda, Beijing reaffirmed it seeks to speed up the development of the digital economy and support platform enterprises as drivers of economic growth, job creation, and global competition.

But do internet finance platforms such as Ant actually promote entrepreneurship? In a recent Working Paper* co-authored with Zeynep Alraqeb (Bundesbank) and Camille Macaire (Banque de France), we answer this question with a cautious yes. Using a dataset on fintech adoption and labor statistics, we find that provinces with greater fintech adoption relative to the national average (see Figure 1) subsequently have a greater share of self-employment, without affecting private sector employment at large. To assess fintech adoption, we use an index compiled by the Institute of Digital Finance at Peking University, which measures how many people in a given county use Ant Group’s platform, how many digital financial services they use, and how many users obtain digital credit, among many other variables. We hypothesize that digital platforms allow would-be entrepreneurs to tap into formal and informal financing channels, get paid, and manage financial risk with ease – in a way traditional banks were never able to provide.

Figure 1. Relative Fintech Adoption Indicator, 2018

Sources: Peking University, Ant Group, authors’ calculations

The beneficial effect of fintech adoption on entrepreneurship is particularly pronounced in rural areas, which are particularly underserved by incumbent financial services providers. We also analyze the regulatory concerns that triggered Ant’s rectification campaign and the company’s responses.

In sum, there is some evidence that fintech platforms such as Ant Group fill a gap in helping entrepreneurs get off the ground, especially in rural areas. Concerned with employment and bottom-up economic growth, policymakers in China have likely taken notice. Policy moves and public statements in recent years indicate that Beijing seeks to simultaneously support the growth of internet finance platforms and reign in anticompetitive practices and risky behavior. Whether the regulatory crackdown on fintech platforms actually achieves both aims or not remains to be seen. In any case, Ant’s rectification and its role in the real economy carry important lessons for anti-competition authorities and financial supervisors in other jurisdictions who are struggling with similar problems.


* Alraqeb, Z., Knaack, P. and Macaire C. (2022). Does fintech promote entrepreneurship? Evidence from China. Banque de France WP no. 895.