China is set to be the global leader in digital payments by 2020, overtaking the U.S. in a market predicted to grow by double-digit rates over the next few years, according to the “World Payments Report 2017” by French technology consulting firm Capgemini and banking group BNP Paribas. The study predicts that the number of global non-cash transactions will increase at a compound annual growth rate of 10.9% until 2020, when they will reach USD726 billion. Developing economies as a whole will grow at 19.6% a year, with emerging Asia, led by China and India, set to record the highest growth worldwide – 30.9% – due to sustained digital innovation and adoption of digital payments.

“By 2020, it is highly likely that emerging economies will be the powerhouses of global non-cash transaction volumes growth, with China most likely challenging the U.S. as the leading market,” the report said. China alone will see growth of 36% over the next five years, it added. The study comes shortly after a United Nations report that predicted online, mobile, and digital currency payment systems would overtake credit and debit cards as the most popular ways to pay for e-commerce worldwide by 2019.

China is currently in third position in terms of the total non-cash transaction volumes. Its growth would be driven by multiple initiatives designed to create a cashless economy. “Chinese shoppers are more willing to store their payment information on their smartphones and are also willing to experiment with alternative payment methods, suggesting higher growth rates of mobile payments in the near future,” the report said. Chinese financial technology firms have already begun to export their services. Ant Financial, an Alibaba affiliate, has been trying to buy U.S.-based MoneyGram International. It has filed for clearance from the Committee on Foreign Investment in the U.S. (CFIUS).

Tencent, Alibaba’s rival in China, has also made a push into India’s e-commerce and online payment industry. It led a USD175 million funding of Indian messaging app Hike last year, along with Taiwanese tech firm Foxconn, and partnered with Microsoft and eBay earlier this year to invest USD1.4 billion in Indian online retailer Flipkart.

China’s mobile payment market had reached CNY23 trillion by the end of the second quarter, up 22.5% from the previous quarter, according to Analysys International. “The development of non-cash payments and the decrease in the use of cash are an irreversible trend,” Wang Xin and Guo Dongsheng of the People’s Bank of China (PBOC) said, as reported by the South China Morning Post.

As recently as the spring of last year, a nearly 2% decline in China’s currency in a week would have sent global markets into a tailspin. But 18 months later, the muted response on the part of international investors a 1.9% decline in the yuan versus the dollar – the sharpest weekly drop since the surprise devaluation of China’s currency on August 11, 2015 which triggered a dramatic deterioration in sentiment – is one of the clearest signs of the persistent bullishness in markets in the face of mounting financial and geo-political risks.

While the onshore yuan hit a 21-month high against the greenback as recently as September 8, partly due to this year’s plunge in the dollar, the recent decision by China’s central bank to scrap two trading curbs designed to deter speculation against the currency reveal the extent to which sentiment towards China itself has improved and the degree to which global financial conditions have eased, in part because of the steep decline in the dollar.

In the same week in which the yuan suffered its sharpest fall in more than two years, the Shanghai Composite Index barely budged, having risen 9% since the end of May, in stark contrast to its 24% decline in the six weeks following the August 2015 devaluation. Beijing’s success in stemming capital outflows and stabilizing the yuan – China’s capital flow even turned positive in the first half of this year while the yuan is still up more than 4% versus the dollar since the start of this year – has been helped by a confluence of favorable external factors that have pushed the dollar index down nearly 10% to its lowest level since April 2016, the South China Morning Post reports.

One of the biggest Bitcoin exchanges in China and the world announced that it would stop all trading at the end of this month, following new Chinese government regulations clamping down on crypto-currencies, and its ban on initial coin offerings (ICO). BTCC – China’s No. 2 Bitcoin platform by volume and the world’s third-largest – said that “after carefully considering” the announcement by Chinese regulators, it will “stop all trading” on September 30. It has already stopped registering new users, but foreigners can still use its services in overseas markets, Shanghai-based BTCC said in a statement.

Bitcoin exchanges OKCoin and Huobi issued statements saying they would shutdown all trading between bitcoin and the yuan by October 31. At least 20 smaller exchanges in China followed suit. Besides Bitcoin, other crypto-currencies, such as Litecoin and Ethereum, are also affected.

The National Internet Finance Association of China said that there was “no legal basis for platforms which engage in the trading of various forms of ‘virtual currencies.’” The Association, which was created by the People’s Bank of China (PBOC), warned on its website that such currencies are “increasingly used as a tool in criminal activities such as money laundering, drug trafficking, smuggling and illegal fundraising.” The Bitcoin’s price crashed from a high of around USD4,359 to below USD3,000 before recovering.

Jiang Yang, Vice Chairman of the China Securities Regulatory Commission (CSRC), said at a forum in Beijing that China should be more cautious on innovation in the finance industry to prevent fiscal and systematic risks.

What is an ICO?
An initial coin offering (ICO) is a form of crowd-sourced fundraising that uses cryptocurrencies. Also known as digital currencies, or virtual currencies, cryptocurrencies work as a medium of exchange using encryption to secure transactions and for creating (known as mining) additional units. Cryptocurrencies, the best known of which is the bitcoin, use distributed ledgers known as block chains to track transactions. There are now hundreds in existence, as the currencies’ independence make them attractive to some users. Cryptocurrencies can be designed to be widely used, as with bitcoin, or to operate within an online network like the Ethereum network that uses ethers to make payments. When a new cryptocurrency is launched, the creators, as with any other project, need funds to make it work. ICOs have evolved to fill this need.
How does an ICO work?
In initial public offerings (IPOs), companies sell their equity, in the form of shares, for cash. Rules that govern IPOs usually require the companies selling equity to be backed by tangible assets. During ICOs, companies exchange their newly created cryptocurrencies — called tokens — for payment in an existing currency, which can be old-fashioned cash, or an established cryptocurrency, often bitcoin. ICO investors profit when their tokens gain in value at a faster rate than the currency they used to pay for them. The value, or “capital gains” of these appreciating tokens can only be realized if they are exchangeable for legal tender, or for goods or services. These fundraising ICOs are conducted online, and are usually announced on a cryptocurrency forum. Most projects have a white paper, a website, and active online forums as a way of building confidence.
Examples of ICOs?
Karmacoin held the first ICO with its April 2014 sale of karmashares. Ethereum sold USD18 million of ether units in July-August of 2014, valuing each ether at less than USD1. As of June this year, each ether unit was valued at USD378. As many as 65 ICOs were completed in China in the first seven months of 2017, raising a combined CNY2.6 billion, according to the Beijing Internet Finance Association. According to the People’s Bank of China (PBOC), 90% of the ICOs that have been launched were fraudulent.
Regulation?
In July, the U.S. Securities & Exchanges Commission (SEC) determined that the virtual currency DAO Tokens were securities, and said that those who offer and sell securities in the U.S. were required to comply with federal securities laws, regardless of whether those securities were bought with virtual currencies or distributed with block chain technology. The People’s Bank of China (PBOC) has now banned ICOs outright, calling them illegal and fraudulent. The PBOC also ordered banks and payment companies to stop opening accounts for digital coin fundraising platforms and to restrict payments into and out of related individual accounts. The clean-up efforts are likely to force hundreds of P2P platforms out of the market because they won’t be able to secure a custodian bank or convince regulators that the deposits are being used appropriately. Analysts expect the ban to be temporary, until new regulations can be issued.
Bitcoin and other cryptocurrencies have been legally accepted as money in Japan since 2014, the South China Morning Post reports.

China’s first consumer credit company has become the latest financial firm to be hit by scandal after the banking regulator fined it for malpractice, and handed out individual punishments to its four Executives. Bank of Beijing Consumer Finance Company, which was established in 2010 with the hope of finding a business model for consumer credit in China, was fined CNY9 million for “seriously violating prudent operating principles”, including running unauthorized businesses, filing false documents, and hiding important facts from the regulator, the Beijing branch of the China Banking Regulatory Commission (CBRC) said in a statement. Two executives were fined CNY500,000 and CNY200,000 and two others were barred from working in China’s banking industry for 12 years and two years.

“The biggest difficulty for consumer finance in China is the lack of credit records,” Felix Yang, Analyst from consultancy Kapronasia, wrote in a report. More than 900 million Chinese, or 65% of the population, have no credit records, compared to just 11% in the U.S., he said. “The development of a credit rating system in China has been slow. As a result, many players in consumer finance are running with few risk controls,” Yang wrote. “They may look fine while the market is growing, but when their business expands to a certain level, the accumulated risk will be a huge concern.”

As Bank of Beijing Consumer Finance, which has registered capital of CNY850 million, is not required to release annual figures, its financial situation cannot be fully assessed. However, Bank of Beijing – its biggest shareholder with a 35% stake – said in its 2016 annual report that it booked a loss of CNY476 million from its holdings in the consumer finance firm for the whole of last year. Spanish lender Banco Santander also holds a 20% stake.

Bank of Beijing Consumer Finance was once lauded as a model business in China. By providing collateral-free loans to pay for such things as home appliances and outbound travel it encouraged consumer spending, which is exactly what the government wanted as it sought to rebalance the economy away from fixed-asset investments, the South China Morning Post reports.