The application of China’s Digital Currency Electronic Payment (DC/EP), also known as digital yuan, is taking another critical step forward in the business-to-business (B2B) segment and for wage payments. JD.com, the country’s second-largest online retailer, showed for the first time how it uses digital yuan for its payroll, as well as pilot applications and digital solutions for corporate payments for its supply chain partners, during the fourth Digital China Summit in Fuzhou, Fujian province. In January, JD.com tested the use of digital yuan to pay some of its employees in cities like Shanghai, Shenzhen and Chengdu. Employees can deposit their digital salaries in their personal bank cards, and can use the money where the digital currency is accepted in pilot cities. Peng Fei, head of the DC/EP program at JD Digits, JD.com’s fintech arm, told the Global Times that “many of our digital yuan pilot projects are at the consumer level, and now we are starting to pay attention to where the money comes from. Paying salaries is a good way to source digital yuan.” Peng said that the scenarios and applications of the digital yuan for businesses will be even more numerous in the future.

JD.com was the country’s first online platform to accept China’s digital currency, after the Suzhou municipal government in Jiangsu province handed out 100,000 virtual red packets of CNY20 million in total to local residents via a lottery, in order to encourage spending during the Double Twelve online shopping festival last year. Leading Chinese technology companies such as Huawei and Tencent also exhibited their advances in the digital currency area during the Fuzhou summit, attracting many visitors who were eager to test out the new currency. Chinese fintech giants Ant Group and Tencent announced further cooperation with China’s central bank to move forward with the digital yuan, vowing to provide active support to the rollout of the currency. According to Ant Group, which is under strict regulatory scrutiny over some of its business practices, the company will support the research and development of the digital yuan and its technical platform, while Tencent said that it has provided full support to the digital yuan pilot project, and will carry out controlled trials under the instructions of the People’s Bank of China (PBOC). “Currently, there’s no plan to launch the digital yuan nationwide. But the scale of the trial runs will be increased,” said PBOC Deputy Governor Li Bo, at the Boao Forum for Asia held in Hainan province on April 18.

The scope of the use of the digital yuan will be further expanded during this year’s May 5 Shopping Festival, with digital yuan red envelopes, or consumption coupons. Suzhou and Shanghai will give out red envelopes to consumers during the upcoming shopping festival. At present, six banks that will run trial digital yuan have connected with merchants and will together launch promotional activities. Nearly 50 Carrefour stores in Shanghai, Suzhou and other neighboring cities will fully launch the digital yuan payment trial during the second May 5 Shopping Festival. Unlike Alipay and WeChat wallet, the digital yuan can be used without internet access. 

In Shanghai the digital yuan is now on trial at selected spots, including groceries, vending machines, fresh food markets, department stores and shopping malls. To make an e-yuan payment, people need an account with any of  six state-run banks and request an e-yuan wallet smartphone app. Users can simply swipe up to pay or swipe down to receive payments. If the two parties both have e-yuan accounts, a payment can be made via the app, and the only information you need to fill in is the recipient’s mobile number or e-yuan wallet number. At merchants supporting e-yuan payment, consumers can also use the “tap-to-pay” service. This allows users to make digital yuan payments without the Internet, with the help of NFC technology, the Shanghai Daily reports.

The renminbi yuan strengthened its position as a global settlement currency last year, with a growing number of overseas financial institutions willing to increase their Chinese currency denominated assets, according to a new survey by the Bank of China (BOC), based on responses from 3,286 enterprises, 76% of them domestic companies. The remaining 24% were overseas businesses from 32 countries and regions. Cross-border renminbi settlements exceeded CNY28 trillion last year, up by 44% from a year earlier. About 79% of domestic and overseas enterprises who participated in the survey said they would consider using the yuan for cross-border transactions or were willing to increase the proportion of the Chinese currency used in such transactions. About 31% of domestic respondents said last year their overseas trading partners fully accepted using renminbi as a settlement currency, up 4 percentage points from 2019. The survey also found that the level of the renminbi used in China’s outbound direct investments (ODI) rose significantly, as 51% of domestic businesses said the use of the renminbi in ODI accounted for no less than 20% of the total last year, whereas only 38% of domestic business enterprises said so in 2019, the China Daily reports. 

China announced it will launch a second public test of its digital currency in the form of “red packets” – consumption  coupons. The new round of tests involve a wider range of consumer and application scenarios compared to the first public trial. The pilot scheme has already been successfully rolled-out across several provinces. Suzhou, in Jiangsu province, plans to issue CNY100,000 digital red packets worth CNY20 million in total, each containing CNY200, to local residents. Ongoing pilot programs have been running across five Chinese cities, including Shenzhen in Guangdong province, Suzhou in Jiangsu, Chengdu in Sichuan, and the Xiong’an New Area near Beijing. The new currency is also in trial test in areas where the 2022 Winter Olympics will be held.

The Suzhou program is unique in adding online payment in addition to various offline applications. Suzhou residents in designated parts of the city can order and pay for products on the JD.com platform without leaving their home. China’s digital economy has entered a period of rapid advancement. Research and development (R&D) and applications for a digital yuan will be conducive to improving connectivity between individuals and enterprises in the digital economy, while boosting economic growth, said an analyst. 

PBOC Governor Yi Gang said  that China will push forward the R&D of China’s sovereign digital currency in a steady manner, launch pilot tests in an orderly manner and improve the legal framework for the digital yuan. After several years of development, the technologies have become more mature by 2021, according to Pan Helin, Executive Director of the Digital Economy Research Institute at the Zhongnan University of Economics and Law. “In recent years, China’s digital industry has boomed, and new technologies such as big data, cloud computing, 5G, artificial intelligence and blockchain have been rapidly developed and widely applied in various fields of the social economy, laying a good foundation for the development and application of the digital currency,” Pan told the Global Times. Seventeen years after the second amendment of the Law on the People’s Bank of China was approved, public comments are also being taken on a new draft version that was proposed in October, which could potentially legalize the digital yuan, paving the way for its popularization in China. Once passed, the new draft would enable the PBOC to coordinate supervision over important financial institutions, financial holding companies and important financial infrastructure, as well as to increase penalties for violations.

“The new law is an attempt to guard against systemic financial risks amid the two-way opening of China’s market and the huge scale of financial products innovation,” Dong Dengxin, Director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times. “It will play a vital part in financial supervision. It will guard against forgery and money laundering, as it is highly traceable. It will also cut the cost of issuing, recycling and transporting cash,” Dong said. Guo Tianyong, head of the Chinese Banking Industry Research Center at the Central University of Finance and Economics in Beijing, told the Global Times that usage of digital yuan through online payments can achieve “point-to-point” transactions. Payments won’t have to go through WeChat or Alipay but instead through another system backed by the PBOC, and help reduce risks, said Guo.

Meanwhile, the Hong Kong Monetary Authority (HKMA) is discussing with the Digital Currency Institute of the PBOC  technical pilot testing of the digital yuan, or e-CNY, for cross-border payments. Eddie Yue, Chief Executive of the HKMA, said the monetary authority and the PBOC have been making corresponding technical preparations, but there is not yet a timetable for the launch. As the largest offshore yuan center, Hong Kong has a pool of more than CNY670 billion, although most of it is illiquid. Renminbi is already in use in Hong Kong, and the status of the e-CNY is the same as cash in circulation, said Yue. The digital currency will be an additional payment option for those who need to make cross-border purchases.

Ant Group, the financial technology arm of Alibaba Group, has filed for a dual listing in Hong Kong and Shanghai, in what may be the largest share offering. The fintech unicorn will sell at least 10% of its total capital post-issuance, split between Hong Kong and Shanghai’s STAR Market. China’s richest man, Jack Ma, will donate 611,337,334 shares of Ant Group to charitable causes, the filings showed. While the size of the IPO is still subject to market conditions, the dual listing is widely expected to surpass Saudi Aramco’s USD29.4 billion listing last December, the record for the world’s largest fundraising. Ant Group operates Alipay, one of China’s two dominant online payments services. Over a billion users use Alipay for purchases both online and in stores, to send money to friends, and to pay bills. In the 12 months to end-June, Ant recorded CNY118 trillion in transaction volume.

First-half revenue rose 38% to CNY72.5 billion, from CNY52.5 billion a year earlier, giving the company CNY24.4 billion in pre-tax profit, an eightfold jump year-on-year. More than half its 2019 revenue came from financial services such as lending, wealth management and insurance offered through Alipay. The platform also enabled US$290 billion in credit to individuals and small businesses, as well as USD500 billion in investments. In the filing, Ant said it plans to use the funds from the listing to expand its services, invest in research and development, and to expand its payments business internationally. Ant Group was valued at USD150 billion in a private fundraising round in 2018, making it the most valuable startup in the world. The company also runs one of the world’s largest money market funds, as well as Zhima Credit, a private credit rating system for its users. Alibaba listed in the U.S. in 2014, but last year raised billions more in a second listing in Hong Kong. In July, Alibaba’s Chinese rival JD.com raised almost USD4 billion in an IPO in Hong Kong that was the world’s second-biggest of the year. Tech analysts say Ant Group controls more than half of China’s huge mobile-payments sector, which it fiercely contests with Chinese rival Tencent’s WeChat, the Shanghai Daily reports.

Ant Group plans to allocate 40% of the CNY48 billion it plans to raise from its initial public offering in the STAR Market on innovation and technology-related investments, as they “hold the key to success and serve as the foundation for an inclusive ecosystem”, the China Daily adds. Ant said it has 26 indigenous core technology products, 18 international and national awards for key technologies, and some 26,000 patents or patent applications across 40 countries and regions, spanning multiple technologies from artificial intelligence, risk control, and security to blockchain and robot advisory services. Ant charges technology service fees rather than earn income from interest rate spreads, according to You Xi, Researcher at the Beijing Kandong Research Institute, a technology-focused think tank. “Data can pinpoint and predict customer needs, offer customized solutions, and hence gather more clients,” You said. “The growing customer base will in turn generate more data it can leverage to perfect its services.” Three out of the company’s nine board members are from technology-related backgrounds, including CEO Hu Xiaoming. Over 60% of Ant employees are in technology-related posts, whereas research and development expenditure accounted for somewhere between 7.3% and 8.8% of group revenue during the last three years.

Ant’s IPO would be the first simultaneous listing in Hong Kong and the year-old STAR Market, boosting Hong Kong’s status as an international IPO market and helping enhance STAR as a capital markets center. Ant, already the world’s most valuable unicorn, did not disclose the size, timetable or other key details of the offering in its preliminary prospectus. The dual listing could take place in October. Companies raised USD10.3 billion via IPOs on the STAR Market in the first seven months of the year, making the bourse the second-biggest market globally for such listings, behind Nasdaq, but ahead of Shanghai’s main board and Hong Kong.

Ant is also involved in shaping China’s digital currency architecture, according to the filings, which stated it is “one of a number of powerful commercial institutions” that the People’s Bank of China (PBOC) summoned in late 2017 to develop the digital currency system. “Over the past two years, the company has been actively involved in the development and testing of digital yuan, and has been conducting closed-door pilots in cities like Shenzhen, Suzhou, Xiong’an and Chengdu to prep for the forthcoming Winter Olympics scenarios,” it said, as reported by the China Daily.

Ant Financial Services Group, which operates one of China’s two dominant e-payment platforms, will give foreign visitors to China access to its service known as Alipay, removing one of the biggest hurdles that have prevented foreigners from taking part in China’s growing cashless economy. Ant Financial, an associate of Alibaba Group Holding, will allow visitors up to 90 days’ usage of its Alipay smartphone application without requiring it to be tied to a Chinese bank account. The company will introduce an application that will enable short-term visitors to China to make payments for online purchases through its so-called international e-wallet for the first time ever, a statement from the company said. Until now, foreign visitors could not use any of China’s mobile payment systems unless their e-wallets were linked to a local phone number and Chinese bank account.

The move will open the door for Ant Financial to tap into the growing visitors market. China received 30.5 million of foreign visitors in 2018, an increase of 4.7% from the previous year. Tourists spending in areas such as hotels, shopping and food rose 5.1% to USD73.1 billion last year, Ant Financial said.

Starting immediately, visitors can download Alipay for both iOS and Android devices and register for the international version of the app with their overseas mobile phone numbers. Visitors can use their international debit or credit cards to load funds onto a prepaid card provided by Bank of Shanghai, it said. The minimum top-up for each card is CNY100, with the balance capped at CNY2,000. The card is valid for 90 days, after which the balance will be refunded, the South China Morning Post reports.

The decline of China’s yuan to its lowest level in 11 years against the U.S. dollar has led to the U.S. to designate China a “currency manipulator”. Up to now the U.S. had always refrained from slapping the designation on China. The move indicates a sharp deterioration in the trade war and in relations between the two countries. Treasury Secretary Steven Mnuchin said his agency would engage with the IMF ‘to eliminate the unfair competitive advantage created by China’s latest actions’. The Treasury Department justified its actions by citing China’s “concrete steps” in recent days to devalue its currency while maintaining substantial foreign exchange reserves. “The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade,” it added in a statement. China was the last country to be officially designated a currency manipulator by the administration of U.S. President Bill Clinton in 1994. The People’s Bank of China (PBOC) has denied that it devalued the yuan in response to U.S. tariffs. In a statement, PBOC Governor Yi Gang said China will “not engage in competitive devaluation, and not use the exchange rate for competitive purposes and not use the exchange rate as a tool to deal with external disturbances such as trade disputes.”

Financial markets fell from the Americas to Asia, with stock indexes plunging from Seoul to Wellington. Hong Kong’s Hang Seng Index gave back nearly all of its gains this year.

According to analysts, the yuan’s drop could continue into 2020 as the Chinese authorities are showing increasing reluctance to provide concessions to resolve the trade war with the United States. The Chinese currency’s drop has also rattled the currency market, sending 11 regional currencies lower. The break in the yuan below the key threshold of 7.0 to the U.S. dollar, analysts said, was likely to be a deliberate decision made by the People’s Bank of China (PBOC), China’s central bank, which has now decided that the currency can be part of its arsenal in fighting the trade war. It was also a reversal from Chinese policymakers’ steadfast defense of the 7.0 level in recent years, including last year in the early months of the trade war and in 2016 after the stock market rout and sharp capital outflows in 2015. U.S. President Trump hit out at the yuan’s decline, calling it “currency manipulation”. Trump’s threat to impose new tariffs on Chinese imports also sent investors scrambling for the safe-haven yen, lifting it to a 16-month high against the dollar.

Some analysts believe the PBOC will let the yuan settle at about 7.2 to the dollar in the coming months. That would represent a devaluation of about 5% compared to the yuan’s value before the start of the trade war. “Due to the effects of unilateralism and trade protectionist measures and the imposition of tariff increases on China, the yuan has depreciated against the U.S. dollar today, breaking through CNY7, but the renminbi continues to be stable and strong against a basket of currencies,” the PBOC said in the statement.

The Swiss franc, another currency widely viewed as a safe-haven, reached a two-year high against the euro, but the U.S. dollar did not benefit from the scramble for safety. “I’m looking for the yen to continue to move towards all time highs, but not seeing it through yet,” said Neil Jones, head of European hedge fund sales at Mizuho. Jones said he has seen more yen demand coming through, describing it as “a convenient hedge” against increased global risks sparked by U.S. protectionism.

The Pound Sterling also dropped, although for different reasons. Most market participants remain wary of the pound, concerned that the chances of a disorderly Brexit grew after Boris Johnson took over as Prime Minister last month and after Britain’s pro-European Union Liberal Democrats won a parliamentary seat from the governing Conservative Party, the South China Morning Post reports.

China’s “big four” state-owned banks, which together control more than USD14 trillion of assets, tumbled to record-low valuations amid mounting concern that Beijing will encourage them to bail out smaller peers. Smaller Chinese banks tracked by UBS Group need an estimated USD349 billion of fresh capital – a sum they may struggle to raise without support from big banks. The Industrial and Commercial Bank of China (ICBC) lost USD11 billion of market value in one week. Stock investors have never been so downbeat on the world’s biggest banks. The plight of smaller banks has been a major focus of investors since May, when Beijing surprised markets by seizing control of Baoshang Bank in the first government takeover of a Chinese lender in two decades. That was followed two months later by a capital injection into the Bank of Jinzhou by ICBC and two other state-owned financial firms.