China's central bank is building a clearinghouse for online transactions to tame online finance risks and better regulate the expanding industry.

The People's Bank of China says it has approved preliminary plans for the establishment of the platform and the management plan submitted by the Payment and Clearing Association of China, the nation's regulatory body for the industry.

The platform could be launched early next year, according to Cheng Shigang, a senior official with the central bank's payment and settlement department.

The clearinghouse for online payments will reduce settlement risks by disconnecting the direct clearing business between third-party payment firms and banks, and by regulating a guarantee fund that can be used to cover losses, the central bank says. It will regulate all Chinese and foreign third-party online payment providers, including Alipay, which is part of Alibaba Group Holding Ltd.

The move comes after the central bank issued a regulatory guideline in July for internet finance, including online payment services, peer-to-peer lending and crowd-funded equity finance.

Officials and analysts say it is a necessary step, taken at the time when the online payment industry, while expanding, is not mature and faces rising risks.

IRsearch Consulting Group in Beijing estimates that the size of third-party online payments last year reached 11.8 trillion yuan ($1.78 trillion; 1.75 trillion euros), up nearly 70 percent compared with the previous year.

In the meantime, 326,000 new payment viruses emerged and 25 million Chinese users were affected, almost equivalent to the population of Australia, the group says.

Zhao Ying, a senior official at the central bank's Chengdu branch, says the clearinghouse will help improve information transparency and security.

"A unified platform would do a better job and will verify the identity of clients," she says, citing concerns about the rising risk of fraud and money laundering through online transactions.

Echoing her statement, Zhao Yao, a research fellow of Hengfeng Bank Co Ltd, a joint-equity commercial bank in Shandong province, says such a platform would help create a standardized payment market and restore market order.

"Currently, the use of money deposited in the third-party payment institutions lacks standardization and transparency," says Zhao, who has been researching the subject since 2012. "How the money flows remains unknown to commercial banks and regulators, thus leading to risks of embezzlement and capital chain ruptures.

"Establishing a centralized depository system will fundamentally prevent payment institutions from misappropriating the money and using it for loans, investment or wealth management."

Contact the writers at wangyanfei@chinadaily.com.cn

(China Daily European Weekly 08/19/2016 page25)