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Dragon Casts a Cashless Trap:Society, Geo-economics and Geopolitics By Gp Capt (Dr) R Srinivasan VSM

Updated: Feb 21, 2023

Image Courtesy: The New Economy

Article 11/2021

On 23rd November 2020, Indian Express carried an interesting piece on threats posed by Chinese Tech Giants to the Western banking system (AFP, 2020). It said European banks remain wary that Chinese Tech Giants may soon be their main competitors. The article indicated how China pulled the rug from under the feet of Ant Group dashing its hopes of raising USD 34 billion through IPO. Alibaba’s Jack Ma who holds major stakes in Ant Group has reasons to feel frustrated. In the ongoing tussle between WeChat Pay and Ant Group, the regulatory measures that the Chinese government is taking on Tech Giants which facilitate e-payments outside the banking system seems to be tightening.

This apprehension by European banks by itself should not give cause to look under the surface for any relationship between Chinese Tech Giants and Chinese political ambitions. But in the author’s view, there is a connectivity that belies media discourse that hinges only on financial sector woes.

Cashless Society – Origins and Prospects

Cashless transactions through plastic cards were imagined way back in the late 19th century when Edward Bellamy in his best-selling novel Looking Backward (1888) ‘describes a future America in which money has been banished. Instead of cash, the inhabitants of Bellamy’s utopia use “credit-cards” to purchase all that they need from government depots whose interiors resemble elegant department stores’ (Lauer, 2020). Bellamy’s imagination, of course, became reality as the traditional payment system of cash or credit grew more complex with the influx of immigrants and increase in population. In 1950, Diner’s Club introduced the first credit card which was later followed by American Express in 1959. Stepping beyond these historical beginnings, it was Sweden, which is the first European country to introduce currency notes in 1661, which would become one hundred percent cashless by 2023 (Fourtané, 2019).

Academicians, economists, and analysts are having huge discourses on the pros-cons of a cashless society for quite some time now. Their discourses have pointed to the plusses like transparency and government regulation as wells as perils like loss of privacy and government control over civil liberties (Arvidsson, 2019) (Bond, 2020).

Cash in a Cashless Society

What happens to the cash in a cashless society? In traditional transacting societies, cash is held by financial institutions approved and regulated by the governments including banks. Government monies as well as the citizens’ are held in the coffers of banks. Though increasingly intelligent monitoring systems have come into place across the globe, a spate of banking scams across the world has exposed a fundamental flaw in the utilization of such funds on account of vested political, economic, and personal interests by people in power. The recent debates in India over insurance coverage for bank deposits are an interesting pointer in that direction.

In contrast, China through IT-enabled interventions introduced and expanded the use of QR codes and e-Wallets. Monetary transactions of ordinary citizens in this system funneled the funds of citizens into the coffers of private holders like AliPay and WeChat Pay. Analysts like Aaron Klien point out that new financial technology and its application in China have created a viable alternative payments model where banks play a far less central role, and in the extreme, possibly none (Klein, 2020).

Two years back, China Daily reported that mobile payments in China have reached over $41trillion (277 trillion yuan) annually. More than 92% of the mobile payments are made over the two dominant platforms: Alipay (53%) and WeChat Pay (39%). It even pointed out that with over 130 million outbound trips, travelers from China spent a whopping USD 115 billion abroad (Liu & Mingjie, 2018). In terms of conversions, the transactions which take place in the US dollar are closed on the RMB exchange rate, not on the day of purchase, but on the billing day. In any other country, be it Thailand, Canada, or France, the amount is converted from the local currency to USD and only then to RMB (Brown, 2017). By restricting the cash withdrawals to 1000 RMB (approximately USD 150), both Alipay and WeChat Pay have ensured that the customer funds remain within their ecosystems. With nearly 2.2 billion users between these two giants, the volume of mobile transactions in China have reportedly crossed USD 41 trillion (277 trillion yuan) annually. In other words, the funds that flow through and circulate within their ecosystems are nearly three times the GDP of China which was USD 14.4 trillion in 2019.

China reaches out to the World

Alipay’s associate Ant Group has reached out with its e-payment ecosystem in a big way in Southeast Asia already. By general estimates, the gross transaction value of e-wallets in Southeast Asia will increase to $114 billion in 2025 from $22 billion in 2019, according to Google, Temasek Holdings, and Bain & Co (Kentaro, 2020).

Chinese Tech Giants have already made deep inroads into Africa (Wang, 2019) and Europe (as the Indian Express Report shows).

With even the rudimentary insight in this article, it is not difficult to surmise that these Chinese tech giants have created a funnel through which trillions of USD are circulating with the ecosystem created by them. It is important at this juncture to recognize that expert opinion and widely available inputs in the public domain indicate that banks and financial institutions in China are either directly owned by the government or are overseen by the government. In either case, the Politburo members of the CCP remain in important positions in these institutions (Elliot & Yan, 2013) (McGregor, 2019).

Is there a threat?

Klein observed that the Chinese payment system makes it easy to continually keep funds in digital wallets. The ubiquity of acceptance, lack of fees, and ease of commerce motivate consumers. Money brought into the digital wallet system can be moved into interest-bearing accounts, like money market funds, or invested into Chinese stocks directly through broker-dealer accounts partnered with the platform (Klein, Brookings Institution, 2019). More importantly, with Alipay becoming part of Ant Financial which has the largest mutual fund, Tianhong Yu’e Bao having 600 million investors, over $168 billion in funds, and offering short term interest of over 2%, (a better return than leaving funds in a Chinese bank), the possibility for the trillions of money brought into these ecosystems appear well within the control of Chinese government.

Such a possibility has already been set in motion by statements made by Liu He when he said “Strengthening the party’s overall leadership is the core issue,” alluding to a famous Mao Zedong saying. “In the party, government, military, and civil sciences, in the east, west, south, north, and center, the party leads all. (Bradsher & Buckley, 2018)”. In the light of the report by McGregor in the Guardian (McGregor, 2019), it is evident that the controls that the Chinese government would exercise would ensure that the funds within the ecosystem of e-wallets and QR codes would eventually be utilized by ‘directed investments’ in the shares, Mutual Funds or other state-controlled lending agencies that finance projects across the world.

The first discernable threat therefore is, BRI dreams of China would continue to be funded by consumers across Asia, Europe, the Americas, and Africa using Chinese e-wallets and payment channels.

The second threat is much more credible. In a queer comparison, it would be interesting to look at one of the world’s dangerous terrorist organizations, Aum Shinrikyo. Led by Asahara, Aum came into the limelight when it carried out a Sarin gas attack on Tokyo Subway on 20 March 1995. Apart from the outpouring of grief, the attack brought to light the dangers of Chemical and Biological Weapons as a tool of terrorists. The debates it created in strategic and scholarly communities drowned an important dimension of Aum’s work in the field of creating financial and utility software to a number of government agencies in Japan including the Ministry of Defence, Police and banking/financial sectors. Five years after the attack, the New York Times came out with important insights into this dimension. The report said that computer companies affiliated with the Aum Shinrikyo doomsday sect developed software programs for at least 10 government agencies, including the Defense Ministry, and more than 80 major Japanese companies (Sims, 2000). There is wider unspoken apprehension that Aum Shinrikyo may still pull the financial carpet from under these companies, impacting Japan’s economy critically. These debates and discussions bring out clearly that the financial ecosystem that China is assisting its Tech Giants to build across the world may as well be used to bring down the financial sector of countries that do not see eye to eye with China’s ambitions. Added to this threat is the extent and reach of Chinese research in IT and AI.

What are the options?

Recently, the government of India went ahead and banned 43 more Chinese Apps, specially Alipay Cashier and Alibaba Express (TOI, 2020). It had banned 59 Apps earlier (ET Bureau, 2020) that included WeChat and TikTok. Predictably, China reacted vehemently, even to the extent of hinting at downswing of bilateral relations by the actions of India. Chinese foreign ministry spokesman Zhao Lijian said, “The relevant methods clearly violate market principles and World Trade Organization guidelines, and severely harm Chinese companies’ legal rights and interests. India should immediately redress these discriminative methods to avoid even bigger damage to bilateral cooperation,” (AT, 2020).

India’s actions, seen in the light of the discourse above indicate that it has actually protected its security interests by such a ban. The ability and resilience that the Indian economy has shown and the stability in the political dimension appear to be two important factors in taking to such recourses.

Banning Apps may appear trivial and even cause general unhappiness over segments of the population that are far removed from the understanding of these detrimental implications. Big and small businesses that have become accustomed to easy operations, less transaction fees, and even liberal loans may also feel the pinch. These are precisely the trappings of financial disaster that the widening net of Chinese business through its Tech Giants is casting across the globe.

It is also pertinent to note that Chinese interests in establishing beachheads into India’s banking system are more than a reality. For example, on 18th August 2020, the People’s Bank of China bought a 0.006 percent stake in private lender ICICI Bank by investing Rs 15 crore in its Rs 15,000 crore qualified institutional placement. Earlier, at the end of March 2020, the Chinese central bank held shares worth Rs 4,418 crore in HDFC, Asian Paints, and Ambuja Cements (Malhan, 2020). However innocuous and procedurally right these foreign investments may appear, it is important to understand that the Dragon plays its game in a subtle and unobtrusive way which calls for greater scrutiny. In this light, the Indian government’s decision to ban FDI investments through an automatic route taken on 17 April 2020 (GOI, Dept of Com & Ind, 2020) appears to be guided by immense foresight. However, less than six months later, the People’s Bank of China acquired stakes in banks and industries indicates that greater inspection and action is required in this dimension. Also, the Indian banking sector and industrial houses should be sensitized to the potential risk that they may generate if they are merely guided by profit orientation in the short term.

Across the world, over 70 countries appear to have already walked into the Dragon’s Debt Trap. Their enthusiastic cooperation with the Chinese financial and banking system, directly or indirectly, may spell disaster to their domestic economies in case of leadership in those countries fails to carry out realistic evaluations. With countries like Sri Lanka negotiating for a third tranche of USD700 million loan from China, it appears that such awakening should happen sooner.

(Dr R Srinivasan is an independent researcher and the Managing Editor of Electronic Journal of Social and Strategic Studies ( He can be contacted at The views expressed are personal.)


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