Waited for the day to hit Alibaba, inside China’s’digital yuan’

This is the measure of the Chinese financial authorities, which was put on the Chinese fintech company Ant Group and the parent company Alibaba from November last year to the latest. Alibaba’s stock price plummeted under pressure from the government. According to Bloomberg News, Alibaba’s founder Ma Yun’s net worth has plunged by nearly $11 billion (about 12 trillion won) from the end of October last year until recently.

What is the reason why the Chinese government is attacking Ant Group and Alibaba? On the surface, it is because of Ma Yun’s keynote speech at the Shanghai Bund Financial Summit in October. Ma Yun’s remarks that China’s financial system is preventing innovation hit Chinese President Xi Jinping’s heart, and according to the analysis of the Wall Street Journal (WSJ) that the financial authorities put the blade of regulation on Alibaba.

However, there is an analysis that there is a bigger factor inside. It is a digital renminbi based on blockchain technology. In China, the national central bank is actively working to create and distribute digital currency. Here, there is an ambition to lead the flow of digital currency to replace the existing currency, and ultimately to replace the position of the dollar, the key currency, with’digital yuan’. To this end, the Chinese government gave a total of 20 million yuan (3.3 billion won) of digital yuan to 100,000 citizens of Suzhou in Jiangsu province on December 11-27 last year, and conducted an experiment to see consumption behavior.

Alibaba is what the Chinese government considers as a potential competitor. Alibaba ranks first in the world with 2300 blockchain-related patents as of April 2020. Still, the Chinese government checks rather than cooperate with Alibaba. Online e-commerce that also collaborated on the Suzhou digital yuan experiment was Jingdong.com, the second place in the industry, not Alibaba.

Why. This is because of the wary of Alibaba, which is large with electronic payments. It is none other than the government that has fostered the electronic payment market represented by Alipay. Nikkei Asian Review (Nikkei) said, “The Chinese government regarded Alibaba’s cashless payment service as a technology that revolutionized distribution and finance,” and said, “With the protection of the government, electronic payment services have spread rapidly.”

The problem is that Alibaba and Tencent (WeChat Pay), which have grown in this way, go beyond the electronic payment market to the areas managed by state-owned Chinese banks such as deposits and loans. Alibaba induces investors to invest in Alibaba’s affiliate Money Market Fund (MMF), Webao, without returning the remaining amount after payment with Pay. The total scale of the Webao Fund was 2.4 trillion yuan (about 424 trillion won) as of June last year, exceeding the amount of general deposits held by state-owned banks in China.

It is also prominent in the lending field used by banks. With small loans, the large Ant Group has grown to the point of promoting listing on the Chinese stock market. Nikkei said, “The Chinese authorities are concerned that if information technology (IT) companies such as Alibaba and Tencent expand beyond the control of the authorities, China’s financial policy will lose its effectiveness and existing banks and securities will also endanger.” . The Chinese government believes that they raised tiger cubs when you look at Alibaba, which started as e-commerce and became a fintech and blockchain giant. Ma Yun’s October Bundle speech fueled these concerns.

Therefore, the Chinese authorities believe that in the high-tech financial sector such as the digital renminbi, private companies such as Alibaba should not be given the lead. As a means, various regulations were introduced.

The digital renminbi is also a means to remove the power of private electronic payment systems such as Alipay and WeChat Pay. Electronic payment is the key to brokering bank deposits held by consumers and delivering them to sellers. However, digital renminbi, which is itself’cash’, does not require intermediary. It can be sent to people around you not only online but also offline. This is why Yao Chen, Director of Science and Technology Supervision, China Securities Supervisory Commission (increased and reduced association), argued that “the digital currency payment system does not need to rely on any other intermediary function.”

In the end, it can be said that the Chinese authorities’ smacking of Alibaba has hidden intentions to reorganize the e-payment market dominated by private companies with the government centered through the digital renminbi. Nikkei interpreted that “the tug-of-war between the government and corporations over digital currency is intensifying around the world,” and “this headwind has also begun to blow in the Alibaba empire.”

Reporter Seungho Lee [email protected]