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Are Chinese banks seizing customer digital wallets?


There have been many critics of central banking digital currencies over the years. The matter became even more of a concern after Canadian Prime Minister Justin Trudeau weaponized his ability to control the bank accounts of truckers. Last month a Chinese bank seized and transferred the balance of a Chinese citizens’ digital wallet. Why are Chinese banks seizing customer digital wallets?

Chinese banks are some of the largest in the world today. The 2 largest banks in the world by assets under management today are Chinese. Largest is the Industrial and Commercial Bank of China, and the second is the China Construction Bank (CICHY). The second bank or CICHY is involved in a recent story from Christmas Day.

The China Construction Bank

Over the years our editorial often focusses on what happens in China, specifically when it comes to capital markets. However, the China Construction Bank may not have been covered extensively. In recent news the bank has opened a branch in Hungary and signed a memorandum of understanding with Abrdn aiming to further strengthen cooperation in asset management.

The current President, Zhang Jianguo, has been running the bank since before 2006. Zhang took over when the bank had a balance sheet of around $36 billion and 300,000 employees. At last count this had increased by another 80,000 employees and the company’s balance sheet was $417 billion. Additionally, assets under management were over $5 trillion (according to 2022 results).

It all looks impressive until one takes a closer look at the share price. The bank trades on the Hong Kong stock exchange and had a peak of HK$ 9 in January 2018. Today the share price is on a downward dip sitting at HK$ 4.45. It was worse for a moment in August 2023, but its still not performing as well as it could be.

It is important to remember that China only really came out of lockdown a year ago. Analysts suggest that it will take time for the markets to revert to pre-pandemic levels. Not to mention the real estate problems the country is facing. In the meantime the search for fintech supremacy continues with some suggesting that the largest banks in China have as many as 10,000 engineers developing products and services.

Its whilst having one eye on this backdrop that we need to return to our main story today. Are Chinese banks seizing customer digital wallets?

The rise of the Digital Yuan

In 2019 China started to role out the e-CNY, the digital yuan. Since then 120 million wallets have been opened (at last count). Importantly overseas users can also get access to wallets today. You can even use Visa or Mastercard to transfer funds to the wallet.

To make matters even more interesting, it appears that one doesn’t need access to the internet or Wi-Fi to use the digital yuan. The app has a new function enabling users to make payments without a charged phone or an internet connection. In this case the SIM card itself facilitates the payment. Quite a selling point for some customers.

International collaboration with Thailand, the United Arab Emirates and the Hong Kong Monetary Authority are all under way too. This is through a novel mBridge designed to take on the likes of SWIFT whilst slashing fees on international transfers. Even Tencent is involved now.

But not everybody is a fan of the new technology.

The moment when the China Construction Bank seized a customer’s digital wallet

On Christmas Day there was a court in Beijing Dongcheng which forcibly transferred funds from an individual’s digital yuan wallet. The case set a precedent in China. This is particularly interesting as the literal translation of renminbi, the word for the yuan in China, translates to ‘people’s money’. Except when it isn’t, as was the case with Mr. Ding.

Mr. Ding had lost his case at the Beijing Dongcheng court and was made to pay 5 million yuan in compensation. When he failed to pay his liabilities, the court found out that Mr. Ding had a digital wallet. It turned out that Mr. Ding had a digital wallet at the China Construction Bank and there were some funds in this wallet that could go towards paying the plaintiff. So the court asked the branch of the China Construction Bank to assist in freezing and transferring the balance of the wallet to the court.

The story didn’t hit the international press apart from a small mention from Coindesk. However, the relevance of the story to those who are supporters of central banking digital currencies won’t be lost. It shows how the future may look. How much control the government will be able to deploy to enforce the law. Or to enforce other things as and when necessary.

The story of Mr. Ding is both a cautionary tale as well as a signal about the level of innovation that the Chinese banking sector has reached. Companies are paying salaries in digital yuan. Countries across the ASEAN region are embracing the new payment tool. But, whilst the outlook is good for the currency itself, there will be many pitfalls on the road to complete adoption.

Author: Andy Samu

See Also:

Are tanks really protecting banks in China from customers? | Disruption Banking

China’s slowdown opens up opportunities for Japanese finance | Disruption Banking

Why is inflation in China so low? | Disruption Banking

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