China is dominating e-commerce, impelled by the subsidiaries of Alibaba Group — Tmall, Alibaba, and Taobao and their competitors such as Pinduoduoand J D.com. According to Statista, China’s e-commerce market has seen tremendous growth in the past decade. In 2020, gross merchandise volume on the e-commerce market amounted to 37.21 trillion yuan. The digital buyer penetration in China is expected to grow to 58.8% in 2022.
The Chinese economic system underwent unprecedented changes after the COVID-19 lockdown. The number of online shoppers increased exponentially and most of the businesses built their online presence. Paying by the app has become a common trend— Alipay and WeChat being the most popular digital payment apps.
1.The digital payment system— a brief intro
From large fancy restaurants to roadside vegetable stands, everyone in China has gone cashless. The country has leveraged smartphone-based digital payment systems substantially to simplify trade and businesses.
A digital payment can be generally defined as an electronic transfer of money primarily through a smartphone or a computer. In this payment system, funds flow directly between the accounts. This is a contactless payment system that allows the users to make instant payments.
Contrary to credit card systems or the traditional mobile payment procedures like ApplePay, digital payments don’t require special machinery. Any large or small business in China can go digital just by getting a printout of their QR code.
Because of its convenience and cost-effectiveness, the system was popularized throughout China in a very short period.
2.Benefits of digital payments
Here are some reasons why digital payments have become so popular in China.
The prosperity of a business primarily depends on its financial savings. Today, approximately 72 million merchants in China use WeChat Pay for financial transactions. It’s because digital payment apps charge merchants and vendors significantly lower than banks do for accepting credit and debit cards. Through mobile app payment systems, they can substantially slash the costs and time wasted on labor-intensive manual processes.
In China, you can use a single app for various purposes. These apps are generally termed “Super apps.” A typical example of such an app is WeChat. WeChat can be used for internet surfing, shopping, social media, news consumption, gaming, entertainment, chats, and more. Through these apps, a merchant can approach a massive audience and customers. Because of entertainment options, people install these apps and use them for their regular purchases.
c.Ease and convenience
Businesses need to pivot fast to grow and expand. Their top priority is to leverage convenient technology to save their time, money, and resources. Setting up a digital payment system is not only cheap and quick, but it’s also convenient and user-friendly. Besides, users can acquire their credit history automatically via digital payments, thus allowing employers to easily access credit.
Credit cards are projected to have higher risks of fraud by hackers. There are several security features that businesses can integrate with their payment systems to ensure greater safety. For instance, tokenization, end-to-end encryption,and SSL.
The tokenization technology makes payments more secure. It saves the user’s information and generates a random identifier called a “token,” which replaces the card numbers for each transaction. This number expires immediately after the transaction.
3.Impact of digital payments on China’s economy
According to a study by the Bank for International Settlements (BIS), the fear of transmitting COVID-19 through cash led people to turn to cashless payments. The sudden acceleration in the demand for cashless payments catalyzed China’s quick transition to digital payment methods. This transition has made a substantial impact on the country’s economy.
a.Increase in revenue
Digital payments helped large and small businesses increase their revenue. Since the procedure is fast and smooth, most people tend to flock to businesses offering digital payment options. Digital payments helped businesses grow rapidly as it became easier for them to attract customers, improve collections and close more sales.
Businesses leveraged mobile payment systems to receive immediate updates on when and how customers clicked on their payment links. By knowing the effectiveness of their sales campaigns and communication messages, businesses can form more effective strategies to increase revenue.
b.Empowerment of rural community
China’s shift to digital payments was not just limited to tier 1 cities but tier 3 cities and rural areas also benefited from this transition. The digital economy provided equal financial empowerment to both genders from all geographical locations. This helped low-income communities to gain easy access to financial services like savings and credit for enterprises and their customers — eventually creating a larger digital ecosystem.
c.Reduction in illegal transactions
Digital transactions allow businesses to monitor all transactions and have clearer audit trails to track expenses in real-time. This helped the government to maintain transparency and expel the shadow economy.
Citizen empowerment is fundamental to e-governance. When most businesses utilize digital payments, people are compelled to create and use their personal bank accounts and mobile phones. This is crucial to empower people, especially people living in rural areas. This helped the government to directly transfer incentives and subsidies to citizens without any intermediaries.
The digital economy has opened a new door of opportunities for local citizens. Economic digitalization bridged the gap between startups and banks, so partnerships became significantly easier for newbie entrepreneurs. Besides, the continuous economic progress and continued business growth enabled business owners to make profitable investments and hire more people to establish their business.
4.The future of China's digital payment system
The digital payment system in China has grown from a fledgling system to a dominant one. This system is here to stay and is expected to gain even more popularity among foreign travelers and consumers.
This trend is expected to advance more with the use of the digital currency– WeChat and Alipay are expected to remain the key players in the digital marketing space. The country is taking a step further in going digital through the launch of the electronic Chinese yuan (e-CNY).
In April 2020, the People’s Bank of China conducted trials of this currency in three major cities—Shenzhen, Chengdu, and Suzhou. They have been working on the project since 2014, to digitalize banknotes and coins in circulation.
According to a PBOC official, the electronic Chinese yuan (e-CNY) is a legal tender for businesses with zero interest rates. This implies that it will be issued by the PBOC and its use will be mandatory for all entities in China. The digital currency’s worth will be equal to yuan, however, users will be able to hold it in their mobile phone “e-wallet” app. Keeping in mind that the currency is specifically designed for regular payments, and not to replace the existing bank deposit system.
Although the digital currency will be thoroughly controlled by the central bank, electronic platforms can still join the system as intermediaries between business and consumers. China’s virtual yuan is expected to use “dual offline technology” to enable users to complete their transactions even without internet or with weak signal strength.
Currently, the e-CNY is primarily targeted for domestic use, such as retail payments among local consumers, public authorities, and businesses. However, in the coming years, it is also expected to be used internationally for cross-border transactions.
Digital economy – a gateway to new business opportunities
The surge in digital payments has made China the most suitable place to start a business. From financial security to easy access to customers, it has numerous benefits for small businesses.
Therefore, many people are heading to the country for starting their business. However, despite all the benefits and ease, there are still some legal policies and business regulations, you need to understand before taking the first step towards your entrepreneurial journey in China.
At Business China, we provide all-round business solutions to help new entrepreneurs establish their business in China
. We proudly offer our clients a myriad of business incorporation services
, including but not limited to joint venture incorporation
, import-export licenses
, branch office incorporation
, representative office incorporation
Besides, we understand that handling a business in a new country is challenging. Therefore, our team of business experts and analysts is always ready to help you through the documentation process. We also offer consultancy to our clients so they better understand taxation, appropriate business zones, and more.
Furthermore, we also provide accounting services
to our clients such as bookkeeping, financial statements, and tax compliance services.
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