China Preps For Crowdfunding Fireworks

Crowdfunding — and other forms of alt-finance — has just received a major stamp of approval from the Chinese government.

In a statement from Beijing made only days ago, the State Council included crowdfunding in a larger conversation of policies that could encourage economic growth, according to Bloomberg Business. While no details of the exact proposals were released, reports said government officials expressed overall support for the use of alternative finance.

Crowdfunding is big business around the world, but it is just one part of the recent boom of alternative finance across the globe. Definitions can be murky; there is no universally accepted way to define crowdfunding and other alternative finance types. It’s clear, however, that financing outside of the traditional banking system is on the rise. Estimates of the size of the market vary and the total effect of the market is difficult to quantify. Recent research from Massolution expects crowdfunding alone to raise $34.4 billion in 2015. That’s more than double the $16 billion raised last year.

Regionally, the Massolution report shows China’s crowdfunding market is second only to that of North America, although the Chinese market did see more growth year-over-year. The Chinese crowdfunding market exploded in 2014, growing by 320 percent compared to the 145 percent growth in the North American market.

China in particular is a leader in peer-to-peer lending, giving out nearly four times as many loans than any other country in 2014.

In real numbers, China’s peer-to-peer Internet-based lenders lent $32.5 billion last year. U.K.-based investment bank Liberum Capital Ltd. expects the momentum to continue, predicting that P2P lending in China will double – topping $60 billion – before the end of 2015.

In comparison, the United States—the second-largest P2P lending market according to Liberum—is on track to lend $11.7 billion in the same period.

China has a diverse ecosystem of crowdfunding platforms. Bloomberg reported that as of February 2015, there were more than 130 platforms up and running, according to Yang Dong, deputy dean of Renmin Law School at Renmin University of China. Dong added that for the first month of 2015, 444 projects were funded in the nation totaling $18.7 million contributed by 140,000 investors.

Some experts believe that even with impressive growth, China’s crowdfunding market — especially equity crowdfunding — is being held back by a lack of regulation. Conor Roche, the director of BOP Consulting in China and a researcher interested in crowdfunding, feels that with no specific policy addressing the use of the Internet to raise equity funds, China is missing out on a growth potential that could help Chinese crowdfunding leave Western markets in the dust. Specifically, Roche cited the “lack of clear regulations and consequently a fear of government reprisals from what might be deemed illegal activity” as limiting development.

Although a relatively new phenomenon, crowdfunding has enjoyed a rapid rise across the globe. In just five years, the industry has grown 1,000 percent, according to Fundable. China has just begun to explore alt-finance the potential to scale will make the Asian nation one to watch.