For the first time in history, the Chinese government and its central bank, the People’s Bank of China (PBoC), has opened its $27 trillion payment market to the world. Foreign firms are now allowed to apply for licenses to operate within China, competing against local service providers.
In China, homegrown companies have complete dominance over the internet and finance industries. Alibaba’s AliPay is said to have nearly 70 percent of the payment market share, while Tencent’s Tencent Pay is responsible for the remaining 30 percent. Ever since the launch of AliPay and the emergence of Tencent Pay, the two conglomerates have retained control over the local payment market.
However, overseas firms will soon be able to operate within China, serving users that are already accustomed to local payment applications. Hypothetically, US-based Square, a payment app developed by a team led by Twitter CEO Jack Dorsey, and KakaoPay, a South Korean payment app developed by KakaoTalk developers Kakao, could operate in China if they register with the PBoC and obtain licenses.
“The domestic market is quite saturated with very strong domestic players, and it is relatively hard for foreign companies to get a piece of the pie. But there is a chance for them to compete in the cross-border payment market,” Iris Pang, a Hong Kong-based economist at ING Groep NV told Bloomberg.
The decision of the PBoC and the Chinese government to enable foreign firms to operate in its payment market came after the appointment of the new PBoC head Yi Gang, an American-educated economist well known for his pro-market philosophy.
Earlier this month, WSJ reported that senior officials in the Chinese government stated that the PBoC intends to provide foreign firms with an opportunity to target the local financial sector. The WSJ report noted that the Chinese government has been planning to bring in foreign companies to its insurance and payment market, to free up the two industries.
“Liu and Yi have a shared understanding of the need for financial market reforms and liberalization, coupled with more effective regulation,” Eswar Prasad, a Cornell University professor and former China head for the International Monetary Fund, told the WSJ at the time.
On March 19, according to a South Korean media outlet TokenPost, new Chinese central bank head Yi Gang stated that “bitcoin is a currency that provides freedom to anyone that uses it,” and emphasized that the cryptocurrency is transparent.
The optimistic viewpoint towards bitcoin from Yi was somewhat expected by analysts, given his pro-market philosophy and his plans to liberalize the Chinese financial industry. Potentially, the appointment of Yi and the re-election of President Xi Jinping could lead to the regulation of cryptocurrencies and legalization of trading.
Wei Chun, a local analyst, stated:
“In summary, the Chinese government have shown a positive attitude towards blockchain technology despite its enforcement on cryptocurrency and mining operations. China wants to control cryptocurrency, and China will get control. The repeated enforcements by the regulators were meant to protect its citizens from the financial risk of cryptocurrencies and limit capital outflow.”
Featured image from Wikimedia.