For foreigners with an eye on visiting China, the past few months have been marked by two major milestones in China’s digital payment landscape. The first was when WeChat Pay and Alipay (China’s dominant digital payment apps, owned by tech giants Tencent and Alibaba, respectively) opened account sign-ups to anyone with a Visa or MasterCard bank account.

The benefits of this long-awaited update are clear – finally, those visiting China’s major cities on a short-term basis can seamlessly get by in what is now a largely cashless society. Payments being restricted to residents with Chinese bank accounts has been a major issue plaguing tourist, business and academic trips right up until this summer.

Last month saw the introduction of a similar but perhaps less celebrated update, this time for the e-CNY digital wallet. This is the official app used for managing the digital form of the Renminbi – otherwise known as China’s Central Bank Digital Currency (CBDC) or sometimes called the digital yuan. The e-CNY is still in the pilot phase, with no set date for a nationwide rollout, but the long-term goal is to fully replace the physical CNY.

As with WeChat Pay and Alipay, the most recent update means foreigners can now open an e-CNY digital wallet using a Visa or Mastercard account, which was previously only possible for account holders at one of seven approved Chinese banks. As an extra bonus, the wallet app has also done away with its requirement for users to sign up with a local Chinese phone number, significantly lowering the barrier of entry for non-Chinese nationals.

The implications of this second milestone are less obvious than for the first. If foreign visitors now have easy access to China’s go-to digital payment options, do they really need access to an e-CNY digital wallet? Why would foreigners want to use this niche, state-sponsored cryptocurrency alternative?

Well, e-CNY may not be as niche as its beta phase status would suggest. According to a recent report from the South China Morning Post, this year has seen major inroads in the uptake of the currency, with 950 million transactions made at a total value of RMB 1.8 trillion (£202.5 billion) as of June. This is an order of magnitude up from last August’s figure of RMB 100 billion (£11.2 billion).

Far from a side project of little import, the e-CNY is a pillar of the Chinese government’s vision for a world-leading digital economy – also known as the ‘Digital China’ blueprint. As well as improving efficiency in the real economy for China’s citizens, this strategy is about turbocharging China’s global influence through technological prowess. Looking beyond the current e-CNY trial program (which now encompasses 23 cities and five provinces), China is hoping that utilisation of its CBDC in cross-border transactions will one day promote the RMB overseas more broadly.

The latest digital wallet update effectively kicks off the internationalisation of the digital currency, with the ultimate goal of elevating the Renminbi to a global reserve currency and challenging US dollar dominance. So, while foreign visitors to China may not need to use the e-CNY just yet, it is set to become an important part of the country’s inbound tourism and international business interactions.

According to the People’s Bank of China, which issues the currency, there are also some practical benefits for users, like increased privacy and security. Unlike WeChat and Alipay, which require real-name verification for transactions big and small, the e-CNY digital wallet offers relative anonymity for the lowest-level wallets as users only need a phone number to sign up.

Analysts expect to see the e-CNY eventually become integrated with Alipay and WeChat due to the unparalleled convenience and market penetration of these “super apps”. The Chinese government is, in fact, actively promoting this integration, as it would give the e-CNY a much bigger user base.

Whether or not the digital wallet app is rendered defunct by this outcome, the e-CNY itself will remain key in China’s long-term goal for a highly digitalised society and globally competitive currency. The extent of these benefits to foreigners is still untested, however, as China is at the vanguard of CBDC development – but it will be exciting for expats and tourists to help innovate this new system.

The post Can foreigners use China’s e-CNY? appeared first on Focus - China Britain Business Council.

2022 kicked off with a major leap forward for the e-CNY, also known as the digital yuan, as the beta version of the digital yuan app was officially launched on iOS and Android. Although the app has been available to some users in China for over a year under limited pilot programs, this is the first time the app is freely available for anyone to download and use in any of the selected pilot cities (see below). The digital yuan app is currently only available on Chinese app stores and only available in Chinese.

Users in the following 12 cities across China can now pay for goods and services with the digital yuan:

• Beijing
• Shanghai
• Shenzhen
• Suzhou
• Chengdu
• Changsha
• Xi’an
• Qingdao 
• Dalian
• Hainan Province
• Zhangjiakou, Hebei Province (one of the locations for the Winter Olympics)
• Xiong’an New Area, Hebei Province

Sign-up is possible through seven traditional commercial banks and two online banks, all Chinese:

• ICBC
• Agricultural Bank of China
• Bank of China
• China Construction Bank
• Bank of Communications
• Postal Savings Bank of China
• China Merchant’s Bank
• WeBank (WeChat Pay)
• MyBank (Alipay)

Shortly after the launch of the app, the Tencent-owned messaging app and payment platform WeChat announced that it would begin allowing users to select the digital yuan as a payment option to pay for services. With over 1.2 billion users, of which around 750 million are active on a daily basis, this development could give significant exposure to the digital yuan, which some analysts say faces stiff competition from other online payment platforms – including WeChat itself.

What is the digital yuan?

The digital yuan, officially called the Digital Currency Electronic Payment (DC/EP), is a digitised version of China’s legal currency, the renminbi (RMB). It is issued by China’s central bank, the People’s Bank of China (PBOC). It is designed mainly to be used for high-frequency, small-scale retail purchases and transactions. The digital yuan forms part of the monetary base (M0) of the country, which means the digital currency makes up a portion of the ‘cash’ that is in circulation.

It is important to note that the e-CNY is not a form of cryptocurrency, since it does not operate based on blockchain and is issued by a central bank (i.e., it is not decentralised like other forms of cryptocurrency).

The PBOC first began trialling the digital yuan app in April 2020 when it launched internal testing in four cities. This pilot programme has since gradually been expanded through invites and cash incentives to eventually reach 140 million registered users by October 2021, according to the PBOC.

In May 2021 it was also announced that the e-CNY would be integrated into Alibaba’s services ecosystem. This allows users of Alibaba’s food delivery app ele.me, grocery delivery app Hema Fresh, and e-commerce platforms Taobao and Tmall, to pay for orders using the e-CNY – even though the digital currency is a direct competitor to Alibaba’s payment platform, Alipay.

Can foreigners use the digital yuan?

At the moment, non-Chinese citizens are not able to buy e-CNY. However, there are channels through which foreigners can buy and trade in physical RMB – such as buying RMB in cash or buying RMB currency futures. As the e-CNY has the same value as the physical RMB, this remains an option for foreign investors looking to buy RMB.

Foreigners are, however, able to use e-CNY through the digital yuan app, 数字人民币 shuzi renminbi, with a few caveats. Most importantly, they must be located in one of the 12 pilot cities or areas and have a bank account at one of the approved Chinese banks. Foreigners can also only use the lowest level wallet functions in the digital yuan app, which has a RMB 5,000 (£582) daily and RMB 50,000 (£5,837) yearly spending limit.

Is the digital yuan being used at the Beijing 2022 Winter Olympics?

China has made the digital yuan available for foreign visitors at the Winter Olympics and Paralympics. This is said to be an opportunity for the PBOC to make its international debut of the e-CNY, with foreign visitors being able to use the currency through cards and wristbands (which currently appear not to be available elsewhere).

However, given the very limited number of people that will be able to visit the Olympic sites – China recently announced it would not sell any tickets to the public – the audience for this international debut will be considerably smaller than what had presumably been hoped for.

Will the digital yuan be popular?

The digital yuan app lacks the advantage of WeChat and Alipay of being already embedded into a larger ‘super app’ that has a whole ecosystem of services and functions, and which are already explosively popular.

Nevertheless, a shift in consumer attitudes toward big tech companies could also help propel the e-CNY. This is already beginning to happen, as suspicion and frustration over unfair consumer practices and concern over personal data protection arise. If the digital yuan can successfully position itself as a more secure digital payment option, it could begin to gain some ground.

A version of this article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world. 

The post Will China’s digital yuan replace WeChat Pay? appeared first on Focus - China Britain Business Council.