The reality of a UK fintech doing business in China
The last couple of months have seen a plethora of UK-China fintech announcements, spurred on by Theresa May’s visit to China and the continuing development of the “Belt and Road” programme of infrastructure by the Chinese government.
Much has been made of the possibilities for UK fintech companies in China. In 2017 and early-2018, I travelled to China multiple times to meet with Chinese financial institutions and develop Dealflo’s China proposition.
Despite a unique and complex regulatory environment in which the Chinese government holds many of the cards, I found the realities of being a UK fintech company doing business in China fascinating.
What I quickly learnt was that although regulatory complexities make it difficult for non-Chinese companies to sell directly to Chinese consumers, there are real opportunities for business-to-business (B2B) fintechs that sell to Chinese companies. Despite this, entering the Chinese market can be a complicated business.
I’ve found that there are three key areas that UK fintechs need to focus on if they want to launch in China:
1. Don’t approach China as just another market
China is an exciting, dynamic market with huge trading possibilities. But despite a new approach to doing business with foreign companies, it remains culturally very different.
You need a great deal of patience to win business in China. Every step is time consuming, and there’s a lot of waiting around for official approvals. There’s tremendous potential for miscommunication, and even when you think you’ve prepared for every scenario, a new pitfall can present itself that will take time to resolve.
2. Work with local advisers
You will need to work with good local advisers to help you navigate legal and cultural differences, and to deal with unexpected issues.
For example, when Dealflo started operating in China, new regulations were introduced by the Chinese government that effectively stopped Amazon Web Services (AWS) accessing cloud servers in China. That was unexpected and could have had a significant impact on our plans. We were able to work around the issue with the help of a brilliant Chinese lawyer, who understood not just the legal framework but also the historic and cultural barriers to opening-up access to cloud services. Had we not had that advice, we would have been scrambling to adapt.
We also had to go through a lengthy process with the telecoms regulator to ensure compliance with complex local regulation – again, something that we could only do with great local advice.
3. Understand the complex data residency restrictions
China introduced its cybersecurity law in June 2017. Under this regulation, data has to reside in China. Businesses wanting to move data of more than 500,000 people or data “likely to affect national security or social public interests” have to undertake a security assessment before being permitted to do so. Development work can still be carried out on foreign soil, but these regulations are, of course, very restrictive.
When you do business in China, you have to accept that the Chinese government decides what is, and what is not, important when it comes to data. It’s a totally different approach for businesses used to working with data in the US or Europe. The government is so strict about access to personal data that it is effectively government controlled. Too check someone’s ID, for example, necessitates a process that involves the government. If your business involves working with personal data, then you must adapt to this way of working.
It’s clear that there’s tremendous opportunity for UK fintechs in China. In 2017, PwC China reported that 68% of Chinese financial institutions expected to increase their partnerships with fintech firms over the next three to five years.
Encouragement like this, as well as Theresa May’s recent announcement of the launch of R5-SHCH Connect, a service that links Chinese banks with London’s foreign exchange market, is further proof of the potential opportunities that the Chinese market holds.
By Abe Smith, founder and CEO, Dealflo