A government-backed ‘industrial park’ to encourage central bank digital currency (CBDC) initiatives has opened in China.
The move is the latest indication of Chinese authorities putting faith – and money – behind state-backed digital currency and is likely to catch the attention of policymakers worldwide interested in China’s sustained efforts to promote a CBDC ecosystem and development.
The People’s Bank of China (PBoC) is at an advanced stage of rolling out the digital yuan (widely known as the e-CNY) – progress that puts it significantly ahead of major nations including the US, Canada and UK on CBDC.
The park is located in Shenzhen, whose municipal authority also describes a ‘Shenzhen (Luohu) e-CNY Application Ecosystem Demonstration Zone’ being created in the Luohu district. Shenzhen is a metropolis in southeastern China that links the country’s mainland with Hong Kong. It has grown rapidly in the past four decades, driven by its designation as a ‘Special Economic Zone’.
‘Shenzhen will adopt a city-district collaborative model to jointly build the Demonstration Zone’, the announcement states, explaining that it has established an ‘e-CNY application ecosystem co-operation platform led by the Shenzhen branches of four major state-owned banks’.
RELATED ARTICLE More ‘appeal’ required to ‘make hate go away’: China official on digital yuan – a news story (24 March 2023) based on comments from Changchun Mu, director of the PBoC’s Digital Currency Institute, during a panel discussion hosted by the Bank for International Settlements (BIS) in Switzerland
Incentivising investment
The ‘first batch’ of nine financial companies are ‘settling in’ to the industrial park, according to China Daily. The state-owned media has reported that the district government has ‘unveiled an outline with 10 initiatives to boost the development of the local digital RMB ecosystem’ (the Renminbi – RMB – is the official name of China’s currency).
According to the ‘outline’, the government will arrange a total of 100 million yuan (about £11.3m/$13.7m) as special support funds over the next three years to ‘develop the digital RMB ecosystem in Luohu, focusing on computing, algorithms and data concerning the digital economy’, China Daily states.
It reports that the initiatives ‘also aim to facilitate payment solutions across various industries, promote the use of smart contracts based on blockchain technologies, integrate hardware wallets with smart devices, and encourage the operation and promotion of e-CNY, among other objectives’.
“The establishment of China’s first such park marks a significant milestone in the nation’s digital currency development process,” Huang Tuo, head of Luohu’s financial services department, is quoted by China Daily as saying.
The Luohu park aims to attract commercial banks’ e-CNY divisions and CBDC specialist companies, offering a ‘settlement incentive’ of up to 20 million yuan each, according to China Daily, which adds that start-ups engaging in e-CNY business can also receive a settlement incentive of up to 50 million yuan based on their investments. Enterprises basing themselves in the industrial park will receive free rent for up to three years, China Daily’s article continues, adding that they can also apply for loans with ‘favourable interest rates’ and ‘establish digital RMB experience centres’.
RELATED ARTICLE China’s digital yuan serving up CBDC ‘roadmap’: fintech expert – our news story (7 April 2022) on a webinar ‘Digital Currencies in Asia: Lessons for Europe’ during which Shanghai-based author and fintech consultant Richard Turrin described China as being a decade ahead of territories such as the US and the Eurozone when it comes to CBDC
China’s CBDC in development
Changchun Mu, who is director of the PBoC’s Digital Currency Institute, said in March that the e-CNY needed to be made ‘more appealing and more user-friendly’ in order to ‘satisfy market needs’ and boost adoption.
The number of CBDC digital wallets downloaded in China had reached 140 million in early November 2021, with the number reportedly reaching almost double that number just a few weeks later. But despite ongoing introduction of initiatives to encourage people to use the CBDC, some media reports have highlighted disappointing take-up.
Changchun Mu – who was included in Global Government Fintech’s ’23 people to watch in 2023’ – discussed the CBDC’s journey at a conference hosted by the Bank for International Settlements (BIS) in Switzerland. The e-CNY app had been ‘iterated’ over 19 versions since last year ‘to satisfy market needs’, he told the audience.
“Every day we are collecting comments from every source of feedback, including social media, the app markets and even the call centres – especially the negative ones [feedback]. And we know that users hate us,’ he said at the time. ‘But we have to collect all those negative comments, upgrade our apps to make them more satisfactory for the users – and then make the hate go away,’ he added.
The US, UK and Canada have not committed to launch a CBDC. The European Central Bank (ECB)’s Governing Council just last week gave a thumbs-up to move to a ‘preparation phase’ for a digital euro for the 20-member eurozone. After two years, the Governing Council will decide whether to move to the next stage of preparations ‘to pave the way for the possible future issuance and rollout of a digital euro’.
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