What can we learn from crowdfunding in China?

What can we learn from crowdfunding in China?

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 Modern crowdfunding, which emerged in UK , is a decade old. Crowdfunding is a wildly popular financing option in the West, and the concept of crowdfunding is slowly becoming a global phenomenon. But the largest crowdfunding market in the world is China, where the concept of crowdfunding is relatively new. Crowdfunding has been journeying into the Chinese financial landscape for the last five years. The Chinese alternative financial market which was $ 5.56 billion in 2013 has grown to $ 101.7 billion in 2015, which is a growth by 304% in a mere two years. The Chinese Market is far ahead of the US alternative financial market which is at $36.16 billion.

The first Chinese crowdfunding platform came into existence on July 2011. Demohour is a online crowdfunding platform focused solely on the creative domains like design, film and video, music and publishing. By the end of 2016, China had over 332 crowdfunding platforms. The wild success of crowdfunding in China can be attributed to 3 factors that are unique to China :

  1. Chinese Government’s utilisation of peer-to-peer funding

In 2015, People’s Bank of China launched a pilot to promote rural development  through peer-to-peer funding to aid the unserved and the underserved. The pilot involved pairing four crowdfunding platforms that offer specialized loans to farmers and business loans to SME’s to those in need . This pilot by People’s Bank of China was aimed to improve the financial situation in the rural population. On January 2016, the State Council in China mandated online lending and alternative financing channels to address micro, small, and medium enterprises, farmers, and lower income individuals

2.  The high penetration rates of smartphones, internet connectivity and e-commerce.  

For a developing economy like that of China, the blooming E-Commerce sector, high penetration of internet and smartphones may seem odd, but this is an important factor that has contributed to China’s success in crowdfunding. The presence of local social media sites too have contributed to the success. There are 650 million internet users in China. The use of electronic money options like Alipay, Wechat Wallet, Baidu Wallet is on the rise.

3. Reward-based fundraiser platforms are closely intertwined with e-commerce platforms

The largest crowdfunding platform in China is that of Jing Dong DongJia (a part of Jing Dong). E-commerce giants like JD and Alibaba are patrons for crowdfunding platforms in China.

The success of leveraging the power of the collective to pool funds in China is due to both the support of financial conglomerates and Government backing. Developed and developing nations can indeed imbibe a lesson or two from China’s success story to replicate in their own homelands.

Donald Phillips

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