Officials believe the worst of Covid-19 appears to be over in China, though there are concerns of another wave of infections as the government attempts to reboot the world's second largest economy. Getty
Officials believe the worst of Covid-19 appears to be over in China, though there are concerns of another wave of infections as the government attempts to reboot the world's second largest economy. Getty
Officials believe the worst of Covid-19 appears to be over in China, though there are concerns of another wave of infections as the government attempts to reboot the world's second largest economy. Getty
Officials believe the worst of Covid-19 appears to be over in China, though there are concerns of another wave of infections as the government attempts to reboot the world's second largest economy. Ge

China takes steps to become first cashless society after Covid-19


Kelsey Warner
  • English
  • Arabic

As contactless payments become the norm amid the worldwide pandemic response, China rolled out its digital currency this month in four cities, setting it up to become the world’s first cashless society.

The digital yuan is a public-private initiative, being tested in Shenzhen, Suzhou, Xiongan and Chengdu by franchisees like McDonald's and Starbucks, and other local businesses. It is a "game-changer" in financial services, Nameer Khan, chairman of the Mena FinTech Association, told The National, for a country that badly needs a break.

After four decades of growth, China's economy shrunk in the latest quarter due to the impact of the coronavirus epidemic. Since January, China has recorded more than 83,000 cases of Covid-19 and at least 4,500 deaths, mostly around the city of Wuhan, in central Hubei province, where the outbreak first started. With the pandemic still being felt across the world, officials believe the worst appears to be over in China, and measures are being rolled out to revive the world's second-biggest economy.

Chinese people are no stranger to paying for goods and services through their smartphone. Local tech giants Alibaba and Tencent pioneered digital merchant payments around 2014, leading a transition away from cash, where they now account for 90 per cent of the $17 trillion (Dh62tn) mobile payments market, according to CGAP, a financial inclusion think tank in Washington DC.

The companies, as well as the Chinese government, see digital payments “not as a goal in itself but as an entry point to a vast ecosystem of both offline and online goods and services – and they are using the data generated to transform financial services as well as the physical retail industry”, CGAP found. Mass uptake is enabled by the country’s widespread bank account and smartphone ownership.

But such transactions have always relied on a cash-based system. The digital yuan is a currency that behaves much like normal cash, but exists only as code in a digital wallet, backed by the People’s Bank of China. A cryptocurrency, by contrast, is decentralised by design.

Franchisees of Starbucks, McDonald's and Subway chains in China are on the list of firms that will test the national digital currency in the near future, the South China Morning Post reported, along with locally-owned businesses like hotels, bakeries and gyms.

Several years ago, China banned initial coin offerings and made it difficult for cryptocurrencies to find a foothold in the country, while simultaneously issuing research papers at regular intervals about developing its own digital currency.

"The digital RMB (remninbi, or yuan) is a natural evolution from digital payments," Ling Zhang, a vice president at Binance, told The National. "No-one imagined how universal digital payments would be [from Tencent and Alibaba] five years ago. But it is a step-by-step understanding" and now consumers are ready for a digital currency, she said.

Covid-19, if anything, has been a “catalytic event” for cashless payments, which can rely on a digital currency.

With fears of the virus spreading via bank notes, "the normal way I used to interact with people for the exchange of services or goods is not working anymore", Gaurav Dhar, chief executive of payment technology company Marshal, told The National. Consumers will be forced to change their habits, he said, and he predicted that they will.

Last month, the UAE Central Bank encouraged the use of online and digital services “as a measure to protect the health and safety of UAE residents”, increasing the maximum payment limit for contactless bank cards.

It also directed banks to replenish ATMs with new banknotes to prevent the spread of the virus.

Cash has a few other problems that digital currencies address, according to FinTech advocates. The average life of a $10 bill is 4.2 years and studies have found between 53 per cent and 100 per cent of local currency are contaminated, according to Mr Khan, of the Mena FinTech Association.

The US Federal Reserve reports that the cost of printing a $1 bill is 5.5 cents while the cost of printing a $5 bill is 11 cents.

“One study estimated that in 2018 alone, the global cost of printing paper currency was $35.3 billion. This, by the way, does not include the cost of distributing, collecting, destroying the paper currency and counterfeiting of currency notes,” Mr Khan said.

Nationalised digital money can also counter new digital currencies, therefore protecting a country's sovereignty, he added.

Indeed, the digital yuan is understood to be as much about consumer spending domestically as it is about China’s global trade ambitions.

Jason Wu, chief executive of digital savings company DeFiner, said its digital currency will allow China to “sidestep” a US-dominated financial system and a reliance on the US dollar. It may set China up to become the leader in a globalised digital economy for transactions.

But beware, he added, of growing competition among major economies to roll out similar digital currency products.

Facebook's Libra, for example, is "a very similar move", Mr Wu told The National, and he predicted the digital token, backed by a basket of currencies, may gain traction with US legislators as the economy struggles amid the pandemic.

Recently, a lone senator in Congress, Sherrod Brown, has advocated for a digital dollar wallet to be incorporated in consumer stimulus packages amid Covid-19.

Mr Brown’s pitch for a ‘FedAccount’ would be a free bank account to receive money, make payments and take out cash through member banks and post offices, according to the bill proposal.

Analysts have said it is an idea taken right out of Mark Zuckerberg’s playbook. But it actually looks a bit more like China’s current stimulus plan.

Since last month, digital coupons have been loaded up on Chinese smartphones to encourage spending in restaurants and grocery stores by local government leaders. In Wuhan, for example, about $10 per citizen has been distributed via point-of-purchase apps like WeChat and Alipay.

"Digital coupons allow the Chinese government to trace the usage of these coupons," Dr Shirley Yu, an expert on China's economy and visiting fellow at the London School of Economics, told The National. She noted that cash, as distributed by the US government recently, "does not allow traceability".

Coupons, by comparison, "allow the government to know which sector is most helped, who uses it and where money is actually spent”.

“Out of this crisis we see technology used in China not only in the containment of the epidemic, but also economic rescue. It speeds relief aid and increases efficiency thus enabling a government to more quickly distribute funds to its citizens," she said.

So far, 20 countries are officially working on central bank-backed digital currency projects around the world, adding to a growing sense of an emerging competition. China is at the head of the pack.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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THE SPECS

      

 

Engine: 1.5-litre

 

Transmission: 6-speed automatic

 

Power: 110 horsepower 

 

Torque: 147Nm 

 

Price: From Dh59,700 

 

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The%20specs
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The specs
 
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
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Transmission: Eight-speed auto
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Price: From Dh330,000 (estimate)
The Brutalist

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McIlroy's recent struggles

Last six stroke-play events (First round score in brackets)

Arnold Palmer Invitational Tied for 4th (74)

The US Masters Tied for 7th (72)

The Players Championship Tied for 35th (73)

US Open Missed the cut (78)

Travellers Championship Tied for 17th (67)

Irish Open Missed the cut (72)

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Name: Back to Games and Boardgame Space

Started: Back to Games (2015); Boardgame Space (Mark Azzam became co-founder in 2017)

Founder: Back to Games (Mr Azzam); Boardgame Space (Mr Azzam and Feras Al Bastaki)

Based: Dubai and Abu Dhabi 

Industry: Back to Games (retail); Boardgame Space (wholesale and distribution) 

Funding: Back to Games: self-funded by Mr Azzam with Dh1.3 million; Mr Azzam invested Dh250,000 in Boardgame Space  

Growth: Back to Games: from 300 products in 2015 to 7,000 in 2019; Boardgame Space: from 34 games in 2017 to 3,500 in 2019

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