Lou Jiwei speaking at the second plenary meeting of the first session of the 13th Chinese People's Political Consultative Conference (CPPCC) National Committee on March 8, 2018. He is a member of the Standing Committee and director of the Foreign Affairs Committee of the 13th CPPCC National Committee. [Photo by Du Yang/China New Service]

In recent years, the integration of finance and technology has promoted the innovation and development of the financial industry, and also accelerated the integration and development of finance and other fields. With technologies such as artificial intelligence, cloud computing and big data getting mature as time goes by, platform fintech companies, as a product of the in-depth integration of finance and technology, are gradually involved in traditional financial business by virtue of their own accumulation of users, data and technical advantages. However, the blurring of the boundary between technology and financial business also brings a series of risks. How can we strengthen supervision for platform financial companies? How can the platform finance play a positive role? With these questions in mind, we had an interview with Lou Jiwei, former finance minister.

CHINA NEWS RELEASE: In your opinion, what are the social background and underlying reasons for the digital finance transformation?

LOU JIWEI: In the past 30 years, the global economic society has gradually transformed into an information-based one, which has been accelerating by leaps and bounds. With the popularization of 4G communication networks and smartphones, informatization has penetrated into all aspects of the economic society featuring diversified and complex information tools, various online services such as social networking and e-commerce, and integrated online and offline development. On the other hand, leapfrog development has been realized in technological support capability; and the server computing and storage capabilities have been improved by hundreds of millions of times, so are the improvement of big data-based algorithm capabilities. The digital transformation, driven by both internal benefits and external pressures, has occurred in each and every industry with no exception in the financial industry.

Financial technology (fintech), first originated in the U.S., took shape in the 1990s and has developed rapidly at the beginning of the 21st century. Take stock investment as an example. In recent years, passive investing strategy or index investing strategy, that is, the way to obtain beta returns by purchasing index stocks and ETFs (exchange traded funds), has become more and more popular among investors. In fact, investors do not give up the value of active investing; instead, some fund managers use big data and algorithms to assist in efficiently identifying value stocks to obtain alpha and beta returns. Of course, investors have to pay higher fees accordingly. It can be said that fund managers who cannot keep up with the trend of fintech will gradually get eliminated. As of 2020, the passive investment market accounted for more than 51%, while the passive investors were inseparable from fintech. Fund managers relied on big data and algorithms to invest or withdraw weighted stocks or adjust ETF portfolios in a timely manner or even in advance to achieve index investing and even enhanced indexing strategies. At the same time, quantitative high-frequency trading strategies based on big data and algorithms have emerged. In order to reduce the delay of a few milliseconds, the rent of offices around the New York Stock Exchange has been increasing exponentially, to accommodate databases and servers that support high-frequency trading, and make sure the shortest distance to get access to the exchange system.