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- More than three years after China’s central bank started digital currency trials, adoption in one of the initial test beds, Suzhou, remains lethargic
- Suzhou data show that 130 million yuan in e-CNY were used to settle various utility bills and charges for livelihood services in 2022
Illustration by Lau Ka-kuen.
When the People’s Bank of China (PBOC) launched pilot trials for the e-CNY at the end of 2019, it selected cities based on factors such as major national development and coordinated regional expansion strategies, as well as location-specific industrial and economic features.
Suzhou, the most populous city in eastern Jiangsu province, ticked all the right boxes just like the other initial test sites – Shenzhen, Xiongan and Chengdu. With an economy built on a large manufacturing sector, Suzhou has well-established development zones, an extensive transport network and business-friendly policies that have made it one of the country’s foremost destinations for foreign investment.
Fast-forward to the present and the digital yuan’s adoption in Suzhou, like in other pilot cities, appears to have slowed along with China’s economy in the past few years.
A recent visit by the South China Morning Post to Suzhou Centre Mall, the city’s largest and most popular shopping venue, found a listless state of e-CNY adoption amid the more prevalent use of other digital payment systems. But that has not stopped the local government from targeting an ambitious post-pandemic goal this year.
Suzhou Centre Mall, which opened in November 2017, was developed by Singaporean real estate firm CapitaLand. It is the largest shopping centre in Suzhou, the most populous city in eastern Jiangsu province. Photo: Shutterstock
Similar to most stores nationwide, shops in the mall accept payments via Ant Group platform Alipay or Tencent Holdings’ WeChat Pay. Few establishments put up labels at cashier’s desks to indicate that China’s sovereign digital currency was also accepted. Ant Group is the financial technology affiliate of Alibaba Group Holding, which owns the Post.
Alipay and WeChat Pay each have hundred of millions of daily active users on the mainland after amassing millions of features over the years between them. The two super apps each offer a myriad of services, from retailing and catering to medical services, that ensure convenience in their respective ecosystems to keep subscribers from looking to engage with other platforms. The e-CNY, in effect, became a one-time giveaway that offered consumers neither additional convenience nor any compelling reason to be regular users.
China’s e-CNY roll-out, two years ahead of any other global monetary authority, offers a crucial case study to India, Sweden, Japan, the United States and the UK, which are all in various stages of studying or rolling out their own versions of central bank digital currencies (CBDCs). A 2021 survey by the Bank of International Settlements found that 86 per cent of 65 global central banks were researching the potential for CBDCs, with one-fifth of the world’s population likely to see a sovereign digital currency in the next three years.
Before the Post inquired, a drink shop employee at the Suzhou mall surnamed Wang said she had not encountered a single person who wanted to use e-CNY at the store since it enabled this payment function last year. “You’re the first one to propose to use e-CNY,” Wang said.
A staff member shows use of China’s digital yuan, the e-CNY, during the first Global Digital Trade Expo held in Hangzhou, capital of eastern Zhejiang province, on December 12, 2022. Photo: Xinhua
Still, some stores have processed e-CNY payments. Meng Tao, who worked at another shop in the mall, said the frequency of customers using e-CNY was about “once a month” since their establishment started accepting it last year.
The lacklustre e-CNY usage discerned at the mall is in stark contrast with Suzhou’s ambitious target this year. Local authorities expect the total amount of e-CNY transactions in the city to reach 2 trillion yuan (US$291 billion) by the end of 2023, a big jump from the 340 billion yuan turnover recorded last year. That target amount is also close to the city’s total gross domestic product (GDP) of 2.4 trillion yuan in 2022.
That lofty goal appears to be backed by Suzhou’s efforts to increase e-CNY adoption. The city had 30.5 million personal e-CNY digital wallets, more than 900,000 places to use the sovereign digital currency and support by nearly half-a-million merchants at the end of 2022, according to official data from the local government. Local authorities have also spent more than 40 billion yuan worth of e-CNY as part of the city’s annual financial expenditure, including for salaries, tax payments and housing fund loans.
Suzhou has aggressively promoted e-CNY adoption through various programmes, despite Covid-19-related disruptions that have beset the country in the past three years. During the 2021 Lunar New Year holiday, for example, the city handed out a total of 250,000 e-CNY red packets, worth 50 million yuan, as part of a grand campaign to expand use of the digital currency.
Charlotte He, a 27-year-old resident in Suzhou, said she felt excited at the time for being one of the selected e-CNY red packet recipients in the city, which had a population of 12.7 million in 2021. She remembered spending 200 yuan at a local supermarket the day after receiving the giveaway. That experience, however, was He’s sole memory of using e-CNY in the past three years.
She acknowledged that using e-CNY provided “a sense of security” because it was developed and backed by the state, instead of a private company such as Tencent or Alibaba. Still, she said the sovereign digital currency has not been a preferred payment option in the city because there was little support from local merchants.
Such feedback from He, as well as from other consumers and merchants, has not discouraged Suzhou authorities from finding more ways to promote e-CNY usage. After getting the digital yuan adopted by banks and utilities, Suzhou enabled e-CNY payment at one of its metro rail lines in June 2021. This was later expanded to all five of the city’s metro lines.
Late last year, the Suzhou branch of the state-owned China Construction Bank (CCB) started a campaign to get businesses to open e-CNY wallets as a convenient and secure tool to make electronic payments and money transfers, according to a bank employee surnamed Zhu.
That initiative, however, was poorly received. Zhu indicated that no more than 10 per cent of local businesses have opened e-CNY wallets. If the CCB can provide more incentives, such as lower borrowing costs, interest in e-CNY wallets could be much higher, according to Zhu.
At present, it has been mostly government agencies, state-owned enterprises (SOEs) and public institutions that have opened e-CNY accounts in Suzhou, according to a senior executive at a local branch of the Industrial and Commercial Bank of China. This executive, who declined to be identified because he was not authorised to speak to the media, said it remains difficult to convince enterprises to adopt e-CNY because the ecosystem has not been fully formed, which means that promoting digital yuan adoption was “more of a political task under the direction of national policy”.
The PBOC, the country’s central bank, started studying the development of a sovereign digital currency in 2014 and established a first-generation prototype in 2016. A year later, the State Council gave the PBOC the green light to work with the country’s large commercial banks, telecommunications network operators and major internet companies to develop and test China’s own CBDC. It would eventually serve as a substitute for M0, the monetary term for total physical notes and coins in circulation.
After basically completing the e-CNY’s design, function development and system testing, the PBOC initiated pilot programmes in 2019 with Shenzhen, Suzhou, Xiongan and Chengdu, while testing user scenarios for the 2022 Beijing Winter Olympics. From November 2020, the cities of Shanghai, Hainan, Changsha, Xian, Qingdao and Dalian were added as e-CNY trial sites.
The ongoing pilot scheme has been expanded to 26 cities and 5.6 million merchants, with an accumulated transaction value of 100 billion yuan at the end of August from consumer spending, bank lending and cross-border payments.
In Suzhou, 2022 statistics from the municipal government show that 130 million yuan in e-CNY were used to settle water, electricity and gas bills, as well as charges for various livelihood services during the year. About 1.1 million e-CNY transactions were recorded in transport-related scenarios such as subway and petrol stations. On the enterprise side, more than 12 per cent of corporate transactions by SOEs used e-CNY in the same period.
The southern tech hub of Shenzhen, meanwhile, spent 570 million yuan last year on 73 consumer-targeted e-CNY campaigns. The city recorded 37.7 billion yuan in accumulated e-CNY transaction value at the end of 2022, according to data from the PBOC branch in Shenzhen.
China’s central bank has already included the digital yuan into the amount of cash in circulation, marking a new era for its use in the world’s second-largest economy. Total e-CNY in circulation reached 13.61 billion yuan at the end of December, which represented 0.13 per cent of outstanding M0.
While it has yet to confirm a timetable for the official launch of the digital yuan, the PBOC has said it will continue its pilot programme in line with China’s 14th five-year plan.
A mass roll-out could not be rushed because of efforts to advance the revision of laws and regulations, such as the Law on the People’s Bank of China. The PBOC is looking to formulate relevant administrative measures to enhance personal information protection, while improving the rule book and technical codes of the e-CNY.
“To ensure managed anonymity, we need to strengthen legislation and improve top-level design,” Mu Changchun, head of the PBOC’s digital currency research institute, wrote in the September 2022 issue of Modern Bankers magazine.
PBOC officials have also repeatedly asserted that the digital yuan was designed to replace notes and coins in circulation, not existing digital payment services such as Alipay and WeChat Pay. Last December, for example, Alipay started offering the e-CNY as an express payment option for users of Alibaba’s Taobao Marketplace and Tmall platforms.
“I think it’s natural that e-CNY was used at a low frequency,” said Wang Pengbo, a senior financial analyst at market consultancy Botong Analysys. “It’s hard to conduct a high frequency of transactions because consumers already adopted [other payment methods].”
“After promoting the digital yuan to consumers by rolling out subsidies and red packets, the next stage of the trial should aim to make both consumers and enterprises use it voluntarily,” Wang said.
The stakes are high for Suzhou because it must balance efforts to promote e-CNY with growing its fiscal revenue, which had been hammered by economic headwinds and strict Covid-19 restrictions that were not relaxed until December.
Suzhou’s fiscal revenue rose just 0.1 per cent year on year to 233 billion yuan last year, compared with a 9 per cent growth in the same period in 2021. The city’s GDP grew just 2 per cent in 2022.
Despite Suzhou’s recent economic difficulties, some still see a way for the city to substantially grow e-CNY adoption and reach its goal of 2 trillion yuan transactions this year.
“As long as the government is pushing hard enough, it’s not impossible to reach that target,” Zhu of CCB said. “But for consumers, it won’t make any difference.”
Michelle Feng, a government employee in Suzhou, said she was asked by authorities last October to open an e-CNY wallet, where her salary and bonuses have since been deposited. Feng receives more than 10,000 yuan in the form of e-CNY each month, but said she has never used it to pay for anything.
Every time that money was received, Feng transfers the whole amount to her bank account and uses it via Alipay and WeChat Pay. She asked: “Why should I bother to download another app and use e-CNY when I’m already so used to Alipay and WeChat Pay for many years?”
