The Growth of Cloud Finance in China
Exploring the effects of China's digitalization policies on the transformation of its financial industry.
China’s push for digitalization has had a deep and far-reaching effect on the country’s economy. One field that has benefited greatly from China’s government-endorsed embrace of cloud computing, AI, blockchain, and other modern technologies is the cloud finance industry.
For example, cloud finance has played a key role in China’s goal to fully digitize the end-to-end invoice (发票) process by 2025.
Earlier this month, the consulting company iiMedia Research published the 2022 Research Report on the Development of China’s Digital Cloud Finance, a detailed report on the cloud finance industry and the forces contributing to its growth.1 This article will explore key findings from this report and provide an overview of the current state of cloud finance2 in China.
Note: Unless otherwise stated, all facts and statistics below are taken from the iiMedia report.
Defining cloud finance
Let’s start with a broad definition of cloud finance before getting down to the particulars.
Cloud finance is part of the financial management service industry. The cloud finance industry is characterized by a pattern of shared financial platforms integrating business and financial matters. It promotes the digitalization and “intelligentization” of financial systems in businesses.
The report lays out several general trends that characterized the products created in this field: 1) shared platforms; 2) the integration of business, finance, and taxes; 3) machine-assisted workflows; and 4) real-time data.
Cloud finance tech and its applications
Cloud finance products make use of an array of modern technologies, including big data, cloud computing, blockchain, 5G, and AI. Specific artificial intelligence technologies used include audio recognition, optical character recognition (OCR) for reading text, and natural language processing (NLP) for “understanding” human language.
General examples of cloud finance products include AI-driven receipt recognition (including verification for authenticity and originality), real-time financial reports, and machine-generated predictions for business operations.
Key players in cloud finance
As defined by the report, China’s top three cloud finance companies are Yonyou, Kingdee, and Maycur — headquartered in Beijing, Shenzhen, and Hangzhou respectively.
The report also places Yonyou, Kingdee, and Maycur at the forefront of two axes: market abundance, and market foresightedness and technological capabilities.
In terms of distinctive traits of development, most providers near the “inelastic demand” quadrant [with higher market abundance but less foresight and an emphasis on more fundamental tech, including companies such as Ekuaibao and Funbeitong] began developing their products after the demand existed in the market. They are very adaptive and run the risk of “involution.”3
Providers in the "leader" quadrant [particularly Kingdee, Yonyou, and Maycur] observe trends pointing toward the market's future developments and act accordingly.
Two of the top ten companies listed are non-Chinese. German software powerhouse SAP ranks fifth, and the similarly massive American tech company Oracle comes in next at sixth place.
Factors contributing to cloud finance’s growth
The effect of China’s push for digitalization on the cloud finance industry cannot be overstated, particularly in the current 14th Five Year Plan period (2021 through 2025).
The 14th five-year plan outline,4 published in 2021, devoted an entire section to the discussion of accelerating China’s digitalization efforts. In January 2022, the State Council published its 14th five-year plan for developing the digital economy. The iiMedia report discusses the importance of the latter plan:
This document made it clear that the economy was heading down a path of standardized and democratized development. Seizing new opportunities, it promoted the healthy growth of China’s digitized economy.
On a more granular level, the report points to two separate policy examples that opened opportunities for the cloud finance market: the digitalization of invoices, and accounting reform.
One of the major achievements of the cloud finance system is its participation in the complete digitalization of China’s invoice system. As mentioned earlier, China’s government has set a deadline of 2025 for handling end-to-end invoice processes electronically.
The report places the concrete starting date for this process as 2015, when the State Tax Administration began pilot programs for electronic invoices (which will be referred to as “paperless invoices” below). However, we can find an STA document from 2012 that proposes the concept of “cyber-invoices” (网络发票), citing pilot programs run by various tax bodies throughout the country and a recently amended law calling for the national promotion of an electronic management system for issuing invoices, foreshadows the more centralized program that would come several years later.
In 2017 alone, 1.31 paperless invoices were issued.5 By 2021, the first national paperless invoice service platform was created, and the paperless invoice project's scope spread to additional cities and provinces during 2022.
The report adds the following:
China’s invoices have developed from the versions used in the earliest pilot programs to specialized electronic VAT invoices. A nationally integrated paperless invoice service platform already exists today, and it’s estimated that every field will essentially use only paperless invoices within the next three years.
In addition, China continues to strengthen the supervision of tax services. The impending arrival of the fourth phase of the Golden Tax project6 will also expand the scope of supervision to include "non-taxable" business in hopes of attaining the goal of "managing taxation through digital means." Under these dual drivers, China's cloud finance industry will welcome a golden period of growth.
…iiMedia’s analysts believe that paperless invoices provide a massive boost for businesses’ efforts to standardize management procedures, achieve the automation of procedures, and strengthen compliance. Businesses, on the other hand, also face challenges such as promoting the in-depth integration of business, finance, and tax files as well as improving their digital foundations for the management of financial documents. China’s financial cloud market will welcome a new round of growth.
Recent updates around the country regarding the paperless invoice initiative include the launch of Hainan’s digital invoice pilot program and the launch of the first fully digital invoice system for Qixingguan district in Guizhou Province. Both programs launched on August 28.
As outlined by the report, the Chinese government published multiple policies over the last few years to promote the digital transformation of management accounting, creating greater opportunities for cloud finance. The report summarizes:
To adapt to the zeitgeist of digital transformation and promote the in-depth integration and development of informatization and management accounting, the Chinese government and relevant departments issued multiple policies.
These policies aimed to promote the digital transformation of businesses; promote the data-powered transformation of the entire industry value chain; promote the development of business finance management in a direction favoring intelligentization, informatization, and standardization; and promote the development of the digital economy.
Three particular documents are highlighted:
A 2021 State Council document that suggested formulating and promoting accounting data standards, launching pilot projects to send business accounting statements electronically, and promoting the interdepartmental sharing of data.
The Outline of the Fourteenth Five-Year Plan for Accounting Reform and Development, published by the Ministry of Finance in November of 2021. The outline took further steps to instruct businesses to create a strong foundation for management accounting application data and promote the in-depth integration of financial information systems and business systems, leveraging new technology such as AI and big data.
A 2022 document published by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) that called for the improvement of overall budgeting, compliance and risk control, financial digitization, financial management evaluations, and systems for developing financial personnel among state-owned enterprises.
Financial service market
The cloud finance market is also part of the greater financial service market. Fortunately, the latter market has been booming.
From 2017 to 2021, China’s business-facing financial service market grew in scale from 181.66 billion to 266.44 billion yuan.7 In 2022, it hit 297.25 billion, and iiMedia predicts that it could exceed 400 billion yuan in 2025.
With both supply-side and demand-side factors acting in its favor, the financial management service market will continue to expand. The prospects for cloud finance in China are vast.
Current trends in cloud finance
The report also highlights some of the current trends in the cloud finance industry:
Smart financing has driven the integration of finance and taxes.
The rise of intelligent financial SaaS products has ushered in a transformation for businesses regarding their handling of invoices, finances, and taxes, while also continuously remolding financial working patterns…
iiMedia’s analysts believe that due to smart finance’s embrace of migrating to the cloud, it has achieved broader digitalization of business matters for companies; greatly increased operating efficiency; rapidly responded to customers’ needs; achieved the in-depth integration of finances, business, and taxes; and highlighted its value-creating effects.
Financial services have expanded both in depth and breadth, boosting businesses’ adoption of paperless methods.
As a result of the strengthening of modern management ideologies among businesses, as well as the rise of pressure to lower costs and raise efficiency, financial systems are evolving from simple utilitarian products to include resource consolidation and management services. This means that businesses’ requirements for financial service products are no longer limited to approving reimbursement for expenses, but rather developing both in depth and breadth.
Traditional enterprise resource planning (ERP) systems have created data islands. Digitalization is moving in the direction of the shared finance pattern.
In the traditional framework for informatization, enterprise IT systems were built from the same set of professional software systems, such as ERP and CRM (customer relationship management). This made it easy for a large number of data islands to form.
iiMedia’s analysts believe that as service providers such as financial and taxation robots and cloud platforms enter the market more quickly than before, due to their low-error, low-cost, high-efficiency, and real-time shared financial models, they will be beneficial for the formation of integrated finance and tax management. In addition, they will gradually become an evergreen tool for businesses to achieve greater digitalization in their financial systems.
China’s cloud finance industry provides a unique lens for viewing some of the nuances of the country’s drive for digitalization. It’s an example of a niche cloud industry that is increasingly able to meet demands for greater efficiency at lower costs — due to the interplay of policy, the financial market, and the current state of technology.
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iiMedia has published key highlights from this report through its official WeChat account and on its website. At the time of publication, the report is temporarily free to download from iiMedia’s site. (However, the “highlights” posted online cover almost all of the content in the actual report, so the first links in this footnote will be enough for most readers.)
Minor translation note: The report refers to the industry as “digital cloud finance” (数字云财务), but for the sake of brevity I’ve chosen to abbreviate it to “cloud finance” for this article. (It also feels redundant, since anything cloud-related is presumably digital as well.)
内卷, commonly translated as “involution,” is a popular buzzword that has been covered frequently in both Chinese and Western media. CGTN summarizes the term as “convey[ing] a general feeling of defeat, when the purpose of competition is to eliminate in a zero-sum game.”