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Our preliminary view on the new online payments regulations issued by the PBOC during the summer of 2015 is that it represents protectionism by Chinese central authorities, designed—quite counterintuitively—to curb the power of ascendant Chinese private sector actors; doing so keeps the “market songbird” firmly within the steel birdcage of the state.
In retrospect, when the Ministry of Finance allowed “private” third party payments—as long as the operator was 100 percent domestically owned—it could not have anticipated the ingenuity of the e-commerce players in essentially becoming banks. This, we presume, was not an intended consequence, and central authorities are now seeking to put the genie back in the bottle. Competitors were created that experienced stunning growth rates in holding investment and transaction capital, at the expense of the state banks.