Illustration: Chen Xia/GT

E-commerce giant Alibaba Group made its latest foray into finance last week, announcing a major tie-up with Shanghai's leading broadcaster to promote film finance over its online platform based on the crowd-funding concept. The move extends Alibaba's recent incursions into both entertainment and finance, and could provide a major boost for smaller Chinese movie makers who often lack access to project funding.

But the reality is that movie making is a highly risky business for even the most experienced companies, and smaller productions are famous for losing money. That means many of the projects that get financed through the new Alibaba tie-up with Shanghai Media Group (SMG) may ultimately see investors lose some or all their money if and when poorly conceived projects fail to find an audience.

To lower that possibility, China's regulators should move more aggressively to forge broader frameworks to evaluate and lower risk, and also to certify investors and borrowers for the many new products and services springing up on China's Internet.

Such actions will lay a solid foundation for the development of services like peer-to-peer (P2P) lending and crowd funding, helping legitimate projects get money they need while protecting investors from fraud and poorly conceived projects. That kind of approach would also support development of a new generation of trustworthy financial service providers that can efficiently channel money to China's vibrant private sector, which is often underserved by traditional lenders.

Financial services have exploded on the Chinese Internet over the last two years, as companies rush to offer an array of products to tap demand from smaller businesses and investors that are often underserved by traditional industries. Alibaba has been one of the biggest and earliest innovators, beginning with its Alipay electronic payment service launched a decade ago, and later in other fields.

In its latest financial foray, Alibaba has teamed up with SMG, China's second largest broadcaster and one of its better innovators among traditional media companies. The new partnership with SMG's Shanghai International Film Festival will help promote film finance over Alibaba's Yu'ebao platform.

Yu'ebao uses the crowd-funding concept that lets individual investors provide microloans to independent producers looking for financing. Last year the platform helped to raise 330 million yuan ($53 million) for 12 projects from around 1 million investors, equating to an average investment of just 330 yuan per person. The relatively small size of such investments reduces risk for individual investors by limiting the size of their losses if projects fail to make enough money to pay back loans.

The new partnership has a strong pedigree by bringing together two top innovators that have strong track records for innovation from their respective spaces. It also brings together traditional State-run media and privately owned new media firms, drawing on two distinctly different sets of skills and connections in China's rapidly changing media landscape.

But while Alibaba and SMG are certainly two of China's most respected and trusted media names, China's financial and commerce regulators also have a strong role to play in overseeing development of the rapidly evolving online finance sector. That's because big companies may have good intentions, but ultimately they are profit driven and may not always focus on the best interests of people who use their services.

The most recent case of such conflict came two months ago, when Alibaba became embroiled in a major clash with the State Administration for Industry and Commerce (SAIC) over trade in fake goods on Alibaba's Taobao marketplace. In that case, an SAIC survey found that nearly two-thirds of goods traded on Taobao were fakes, even though Alibaba later disputed the survey's methodology.

Another similar brush-up occurred a year ago when another Internet giant, leading search engine Baidu Inc, was forced to temporarily shut down its popular P2P lending platform to clean up fraudulent activity that was taking place.

The commerce and financial regulators have been working to create rules that will promote the healthy development of online finance, seeking a balance that will control risk without stifling innovation. But they could and should move more aggressively to roll out broader risk reduction frameworks, such as insurance schemes and investor and borrower certification standards. Such frameworks would provide clear and transparent signals and guidelines for all parties involved, limiting the chances for big losses by investors and fraudulent and overly aggressive behavior by site operators and borrowers.

The author writes about China's company news at www.youngchinabiz.com. bizopinion@globaltimes.com.cn