Value Proposition by Jian Yuchi

Author:Jian Yuchi
Language: eng
Format: epub
ISBN: 9789811550256
Publisher: Springer Singapore

8 Different Kinds of Finances: Software, Internet, 5G, Big Data, AI and Block-Chain Will Reshape Financial Industry

In China’s planned economy era, all banks and investment companies were state-owned. Under normal circumstances at that time, enterprises should raise their requests to the corresponding authorities if loans and investment support were required for their production and service activities. Upon the approval, financial institutions (e.g. the banks and investment companies) would make loans or investments available. Therefore, the business relationships between financial institutions and enterprises were fairly simple. They were independent of each other while everything was subject to the plans and decisions made by the state and levels of government authorities. There was neither service concept, nor business integration between financial institutions and enterprises.

In fact, such a “financial culture” under this kind of business relationship has been affecting China’s banking and investment industries all the time. Since the reform and opening-up in 1978, despite a series of institutional reforms, today’s business relationships between financial institutions (e.g. banks and investment companies) and enterprises are still dominated by purely financial lending and investment. The financial investment industry derives its earnings mainly from interest margin. In other words, banks and investment companies are generally not deeply involved in the business development of enterprises. This is an extremely simple and obsolete development mode for the financial businesses and services. What methods and means can be used by banks and investment companies to control their investment and lending risks? Borrowers do not receive any business supports from banks and investment companies except the funds. As a result, the project success depends solely on enterprises’ own efforts. Therefore, there are significant investment and lending risks associated with the financial investment industry in China. This has regularly resulted in their business failures. Meanwhile, the chain debt is a common phenomenon which presents a significant barrier to the healthy development of financial investment industry in China.

There was another confusing issue in China’s financial investment industry which also violated the laws of market economy. During the planned economy era, there were a large number of national or regional banks and investment firms that were horizontally oriented. Even today, a large amount of such regional banks and investment firms are still being approved and established by the governments. Generally speaking, these national or regional banks and investment firms have no sense of concepts for their business’ operating in some specific industries or sectors. They may involve in any industries or sectors, offering loans and investments to any sorts of projects. So, what methods, means and tools can these seemingly powerful and magnificent financial institutions use to control their loans and investment risks? In fact, quite a considerable number of regional banks and investment firms even have become the administrative resources of local governments. They do not have access to any effective means or methods of risk control. Eventually, they developed into a structural issue in China’s financial industry and economy. They impeded China’s pace to the market economy and modernization, failing to provide strong supports to the rapid development of enterprises.

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