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China: Mobile Payments, Cash, and the Digital Yuan

Categories : Cash does not require a technology infrastructure, Cash is a public good, Cash is available to all users, Cash is the first step of financial inclusion, Costs of cash versus costs of electronic payment instruments
January 27, 2023
Tags : Card payments, Cash, CBDC, China, Digital payments
Despite the massive adoption of mobile payments in China, cash in circulation grew rapidly in 2022.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

Mobile Payments: AliPay and WeChatPay

AliPay, from Alibaba’s fintech affiliate Ant Group, and WeChat Pay, from the gaming company Tencent, dominate mobile payments in China, with penetration rates of 93% and 86%, according to Daxue Consulting. Founded in 1999, Alibaba introduced AliPay (an online digital payments solution) in 2003 and launched a mobile e-wallet in 2008. Tencent released an online payments solution (Tenpay) in 2005; in 2013, it merged it with WeChat (established in 2011).

AliPay and WeChatPay employ QR codes; their wallets link to e-commerce, utility bills, investment, and insurance products.

Mobile payments have displaced cash in retail transactions. However, cash-on-delivery (COD) remains dominant for online shopping. Platforms such as Dangdang, Amazon, and allow customers to pay using cash, certified checks, or money order.

The Digital Yuan

China is a large country with vast territory, large population, multiple ethnic groups and wide differences in regional development. In such a society, people’s payment habits, age and security needs vary. Therefore, physical RMB [money] enjoys advantages that could not be replaced by other means of payment. As long as there is demand for the physical RMB, the [central bank] will neither stop supplying it, nor replace it via administrative order. – PBoC (2021: 5)

The rise of digital payments prompted the People’s Bank of China (PBoC) to explore the digital yuan (e-CNY) to “diversify the forms of cash provided to the public by the central bank, satisfy the public’s demand for digital cash and support financial inclusion” (PBoC 2021: 4).

The PBoC has launched e-CNY pilot programs since 2019 in cities including Beijing, Shanghai, Shenzhen, Suzhou, and Chengdu.

The digital yuan might increase government surveillance and social control.

At the end of December 2022, e-CNY in circulation accounted for less than 0.13% of currency in circulation. (PBoC)

The Payments Mix

According to a 2019 PBoC survey, mobile payments dominate retail transactions in China (see Chart 1). While 46% of respondents said they had used no cash during the survey, cash usage remains strong among older people and rural populations (PBoC 2021: 2).

Chart 1. China: Payment Instrument’s Usage

Note: Percentages reported do not add to 100%. Source: PBoC (2021: 2).

The PBoC has forbidden discrimination against cash users by merchants who accept only digital payments. “Cash is the most basic means of payment. Entities or individuals cannot refuse to accept it,” said the PBoC.

Financial Inclusion in China

According to the World Bank’s Global Financial Inclusion Database, in 2021

Cash in Circulation Has Grown Since 2006

Graph 1 shows that currency in circulation grew between 2006 and 2022, albeit more slowly between 2015 and 2021, according to PBoC data. Currency in circulation peaks during the Chinese New Year festivities (January or February).

Graph 1. China: Currency in Circulation, January 2006-October 2022

Source: PBoC Money and Banking Statistics – Money Supply – Currency in Circulation M0, several years (2022).

This post is also available in: Spanish