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Laura He

 

The Beijing Olympics won't be the splashy launch China wanted for its digital currency

 

China was hoping the Winter Olympics would be a watershed moment for the digital yuan, providing a global stage on which to parade its prowess in financial innovation.

 

Instead, geopolitical tensions, the pandemic and China's insistence on stamping out every trace of Covid are spoiling the party, dealing a blow to one of the most ambitious digital currency projects on the planet.

 

China is already on the verge of becoming a cashless society, but the vast majority of those electronic transactions happen on privately owned apps, outside the immediate purview of the state. An official digital yuan — an e-version of the Chinese currency issued by the country's central bank — would change that, giving Beijing an unprecedented amount of information about what people are spending their money on and where.

 

The world's second-largest economy has been trialing the digital yuan in Chinese cities for the last two years, as it prepares for a national rollout that could put China ahead of Europe and the United States in the global race to develop a state-backed digital currency.

 

The timeline for that nationwide launch has yet to be decided, but Beijing almost certainly intended the Olympic Games to be an important milestone on the road to widespread usage.

 

Beijing has been pressuring businesses — including big Western companies such as McDonald's and Nike — to allow customers to use the digital yuan during the Games. The digital version of the currency is one of only three payment choices foreign athletes and others have at sporting venues and the Olympic Village, aside from cash and Visa payments. And last year, Beijing said it would make it easier for foreigners to use the digital yuan during the Games by giving athletes ski gloves and smart watches with built-in payment functions, and scrapping a requirement to open a local bank account if they wished to use the currency.

 

As the event approaches, though, those efforts may land with a thud. Beijing is barring most fans from attending the Games, and has constructed an elaborate quarantine "bubble" to separate Olympians, officials, journalists and support staff from the rest of the city as fears of coronavirus outbreaks persist. Western lawmakers are also warning their athletes against using the digital yuan over mistrust of the Chinese government, including spying concerns.

 

"The Olympic Games would have been the first real chance for tourists and Chinese nationals alike to familiarize themselves with the digital yuan, but that door slammed shut when the Chinese government decided to severely restrict the number of Olympic spectators," said Craig Singleton, senior China fellow at the Foundation for Defense of Democracies, a DC-based research institute.

 

"That decision alone, more than anything else, will likely further delay the mass adoption of the digital currency."

 

A muted international debut

 

Chinese companies and government officials have been touting the Games as an opportunity for the digital yuan in recent weeks, even as it has become obvious that attendance will be minimal.

 

"Launching the digital yuan at a big party like the Winter Olympics can showcase China's latest fintech achievement to the world," Li Xin, chief business manager at Bank of China's digital yuan unit, told the state broadcaster earlier this month. The state-owned bank is the official banking partner of the Beijing Games.

 

Several factors are making widespread adoption difficult. Authorities have created one of the most complex Covid quarantines ever attempted. Known officially as the "closed loop system," the restrictions will apply to some 11,000 people from around the world, sealing them off from the wider Chinese population.

 

Anyone — Chinese or foreign visitor — who isn't part of that system is barred from attending the Games at all, further limiting the scale of the spectacle.

 

Political tensions could also complicate the situation. Last July, three US Republican senators urged the US Olympic and Paralympic Committee to forbid American athletes from "receiving or using the digital yuan during the Beijing Olympics." 

 

The committee didn't publicly respond. But it has reportedly advised US athletes to bring disposable or burner phones to the Olympics in China because of possible surveillance, the Wall Street Journal reported earlier this month. Several other countries, including the United Kingdom and Canada, have offered similar advice to their athletes, according to Reuters.

 

Even if many of the people who do attend the event use the digital yuan, "it won't make a significant dent in overall transaction levels," said Scott Kennedy, senior adviser and trustee chair in Chinese Business and Economics at the Center for Strategic and International Studies.

 

Struggling for traction

 

The digital yuan is already struggling to gain traction within China. Transactions using the currency totaled just $8.37 billion in the second half of 2021, equivalent to $1.4 billion per month.

 

While that marks some progress following two years of trials, it's still far from mounting a serious challenge to privately-owned digital payment apps.

 

Ant Group, for example, revealed in 2020 stock exchange filings that its Alipay app processed $1.6 trillion on average each month — more than a thousand times the digital yuan's monthly transaction volume.

 

After initially limiting usage of digital yuan wallets to winners of a lucky draw, the Chinese government has been making it easier for the public to try the virtual money. At the start of this year, for example, the People's Bank of China released a wallet app on Apple and Android stores that can be used in 10 cities and regions that are piloting the currency, along with the Olympic venues. That pilot app is now available to everyone in those areas, not just the lottery winners.

 

The central bank has touted surging numbers among its trial users last year as a sign of the digital yuan's success. By the end of December, the app had been downloaded by 261 million individuals, or 19% of China's population, according to central bank data.

 

But there are still barriers to use the money, too. Outside of the Olympics exemption for foreigners, people who want to trade with digital yuan need to download and sign up for the central bank app, and then add money from their accounts at one of the designated Chinese banks.

 

The currency also can't be used outside of the 10 cities and regions that are piloting it, along with the participating Olympics venues.

 

Consumers appear to have an "unwillingness to embrace" the currency right now, according to Frank Xie, a professor at University of South Carolina Aiken who studies Chinese business and the economy.

 

Experts cited a lack of incentives as a major reason for the lack of enthusiasm.

 

"The ecosystems that have been built now for a decade around the big tech firms are unbeatable in terms of network and convenience," said Martin Chorzempa, a senior fellow focusing on Chinese financial innovation and technology at the Peterson Institute for International Economics. After all, industry leaders Alipay and WeChat Pay already have hundreds of millions of users who are familiar with their services.

 

"The payment experience does not tend to strike most users as any different or better than what is already on offer," he added.

 

Xie also suspected that concerns about a loss of privacy could be a factor, adding that "even ordinary citizens" have come to realize the reach of the government's power.

 

Read the full story on CNN Business.

Hong Kong says it's 'not illegal' to criticize zero-Covid strategy

Police officers patrol a flower market in Hong Kong as people shop for Lunar New Year gifts on January 30. The city imposed strict restrictions after a surge in Covid-19 cases, closing schools and public spaces ahead of the festival.

 

The decision drew public controversy, prompting one pro-Beijing lawmaker to suggest those advocating for "living with Covid" could be violating the city's national security law. On Sunday, a government spokesperson clarified that "making general remarks and discussion is not illegal," adding that its zero-Covid strategy was "the most effective way to fight against the epidemic."

Metro's attempt at festivity sparks Covid panic

A Chinese subway system's attempt to spread some Lunar New Year cheer backfired over the weekend, as panicked passengers mistook seasonal red QR codes for positive Covid tests.

Chinese social media users reported Sunday that the Shanghai metro's QR code — which passengers scan when they enter and exit stations — had changed color from black to red, according to state-run news outlet The Paper.

It sparked terror in many passengers, and for good reason. For the past two years, a red QR code in China has meant that you have — or are suspected to have — Covid-19.

"When I saw it this morning, I thought my health code turned red," one user commented on the Twitter-like platform Weibo. "At the station exit, I thought about life for a long time, I thought I was going to be taken away."

Many provinces and cities use a color-based "health code" system to curb the spread of Covid. Residents each have a smart phone app that shows their personal QR health code: green for healthy, yellow for close contacts, and red for confirmed or suspected cases.

Even a handful of positive cases can spark strict lockdowns and mass testing in China, one of the few places in the world clinging to a zero-Covid approach, which aims to stamp out all cases within its borders.

The Shanghai metro clarified in a statement Sunday that its red QR code had nothing to do with Covid — but was rather the metro's attempt "to welcome the coming of the Year of the Tiger and create a traditional festive atmosphere," according to The Paper. It switched back to the usual black QR code later on Sunday.

Red is traditionally a celebration color for Lunar New Year, which falls on February 1 this year. During the celebrations, known as Spring Festival in China, people decorate their homes in red ornaments and banners, wear red clothing, and hand out "hongbao," or red pockets with monetary gifts inside.

The announcement was met with mostly lighthearted relief online. "I was shocked when I saw it, and instantly opened my health code to check," one user posted, along with a laughing emoji.

But others took a more somber note, reflecting on how drastically the world has changed since the pandemic.

"It's sad, though," one user wrote. "Before, Lunar New Year was always red, but after the pandemic a red code has a different meaning. I feel like I've forgotten the original symbolism."

Around Asia

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• Gunmen killed a Christian priest and wounded another as the clerics drove home from church in Pakistan's northwestern city of Peshawar on Sunday.
• New Zealand's Prime Minister Jacinda Ardern has entered self-isolation until Tuesday after being deemed a close contact of a positive Covid-19 case.