Exploring the Benefits of China's Financial Technology Progress

China never had a large number of credit cards, so it skipped ahead to smartphone-based digital payments. This leap forward has positioned the country at the vanguard of a global movement towards cashless transactions, observable from Beijing to rural Yunnan. Mobile payments are everywhere, from street beggars to monastery donation boxes, which now feature QR codes for people to scan rather than paper money. Tech companies like Alibaba and Tencent have revolutionized the way consumers interact with money and commerce. This blending of finance and technology illustrates China's skill in incorporating technology into everyday life, something which other nations are keen to emulate. Martin Chorzempa's book, "The Cashless Revolution: China’s Reinvention of Money and the End of America’s Domination of Finance and Technology" examines the unexpected rise of Jack Ma’s Alibaba and Pony Ma’s Tencent (who, despite sharing the same last name, are not related). In his research, Chorzempa noted "No one expected [in 2013] that China would within a few years be at the cutting edge of finance" (Chorzempa 2022). He further notes the amazing speed with which China was able to become a leader in finance and technology, granting its people unprecedented access to financial services. On the other hand, when returning to the US, Chorzempa discovered that financial services had remained largely the same, with paper checks and cards still being the primary methods of transactions. In Chorzempa's view, competition acts as a driving force in spurring innovation, which is evidenced in the Chinese fintech market. Canare and Francisco (2021) suggest that the most prominent accomplishment of competition is its impact on production, a notion that is mirrored in China's digital payments evolution. To repel the threat of PayPal entrée to the Chinese market, Alipay and Tencent set out to improve various aspects of their payment systems, such as Alipay's introduction of an escrow system for e-commerce and Tencent's conception of the Q coin for small-scale transactions. This resistance to intrusion from foreign companies demonstrates the power of competition to spur improvement and refine the production process. The escrow system and the Q coin are a testament to the advantages of market competition over state-led efforts. Veronique De Rugy, a senior research fellow at the Mercatus Center at George Mason University, is a supporter of free markets and contends that “free markets, although imperfect, are a preferable alternative to government intervention” (De Rugy 2022). Her viewpoint is echoed in the success of China's fintech innovations, which suggest that the path to economic prosperity lies more within the free market and less in government regulation. The Chinese state saw the need to step in a new direction, and by adopting a hands-off approach, they implicitly facilitated innovation and distanced themselves from traditional interventions. This strategic reduction of regulations has highlighted the fact that an economy with fewer hindrances, like overregulation, is better able to spur innovation, bolster economic success, and establish a strong presence in the global market. This shows how promoting an environment conducive to technological development can have major impacts on a nation's economic success. In a context of limited governmental regulation, China experienced a cashless transformation where money vanished in favor of apps, like Alipay and WeChat Pay, boasting significant user penetration and multi-tasking capabilities. These tools have been revolutionary in how Chinese citizens deal with money, almost wiping out the use of paper cash. Chorzempa's sound points and in-depth exploration are indeed convincing; however, they miss the mark when it comes to offering comprehensive solutions for countries wishing to embrace similar digital money methods. On the contrary, Chorzempa’s strategy concentrates significantly on identifying fault lines in China’s route, warning against copying those specific facets. We should be grateful for the ease that digital payments bring, although Chorzempa warns us that “new digital money turns out to be a tool of control, not of liberation” (Chorzempa 15). Technology can be a double-edged sword, an idea highlighted when China placed lockdown restrictions due to the pandemic. Lydia Khalil, a research fellow from the Lowy Institute specializing in cybersecurity, explained that Chinese tech companies have a legal obligation to cooperate with surveillance and intelligence missions of the CCP (Khalil 2020). Alipay was one example of such collaboration, creating an algorithm that classified people with either a green or red code which was used for movement regulation. Moreover, Alipay released a command which allowed the Chinese government to track the movements of citizens, raising concerns over civil liberties. Furthermore, when services such as WeChat are bundled, messaging something politically sensitive could lead to account suspension. What was once only an inconvenience has become a worrisome issue, as WeChat is now linked to money, investments, and businesses, making people afraid of speaking their minds. In the end, this debate is not just about streamlined transactions; it revolves around who holds control over data, the potential for surveillance, and the reduction of individual liberty. Chorzempa's investigation into the flaws of these applications provokes one to ask: Is convenience more crucial than personal freedom? As technology continues to shift the way we live, what measures should be taken to make sure technology aids rather than enslaves us? Despite its potential, the applicability of a financial model like China's in the Western world--especially in the United States--is complicated by the values held in the “land of the free.” Privileging individual freedoms, keeping data private, and holding an aversion to governmental intrusion are central to the American way of life. Therefore, introducing a similar digital payment system runs the risk of resistance due to fears of heightened surveillance. Any digital currency system introduced in the West, then, must find a way to balance this sentiment with the need for technological progress. When developing a digital currency in the West, individual privacy must be held at the highest regard. Ryan O’Leary of International Data Corp has reported that 35 states in the US have at least considered data privacy legislation (Violino 2022). Therefore, it is fundamental that the model created adheres to stringent data protection measures as well as open policies in regards to collection and sharing of personal information to earn the trust of users. Simultaneously, a regulatory framework should exist to protect citizens from potential government overreach, such as monitoring location data. To avoid this, regular checks and balances must be established to restrict surveillance and safeguard individual liberties. It is crucial to implement a well-rounded approach that preserves access to and viability of traditional financial transactions, such as cash and check payments. This is due to the fact that some people may be unwilling or uncomfortable with digital currencies due to their privacy, security, or personal preferences. Accordingly, it is essential to maintain a strong infrastructure for traditional banking services, thereby allowing banks and financial institutions to supply essential services to those who want them. Furthermore, people should be able to conduct banking in-person, receive paper statements, and make cash transactions without any difficulty. In doing so, it is possible to avoid placing citizens who opt for traditional methods in a negative position or making them feel excluded, thus averting the imposition of self-censorship. As we consider the ramifications of the financial technology revolution in China, portrayed by Martin Chorzempa's book, the United States stands at a crossroads in its own fiscal development. The importance of competition and limited government regulation in driving change, discussed by Chorzempa, should not merely be viewed as an interesting story, but a summons to action. With deeply ingrained values of individual independence and privacy, the U.S. must take a prudent approach when travelling the road towards digital monies and cashless payments. Though the benefit of such systems is plain to see, the country must make the protection of personal privacy a priority. Additionally, it must endeavor to keep traditional methods of financial exchanges open and available to everyone, without any unnecessary difficulty. As the U.S. contemplates its own fintech horizon, it should learn from the ideas presented by Chorzempa, the accomplishments and failures of China, making use of those only as a measure to shape a digital financial atmosphere that upholds the core values of the nation. Canare, Tristan, and Jamil Paolo Francisco. “Do Competition Strategies Strengthen or Undermine Innovation?: Evidence from Philippine Small and Medium-Sized Businesses.” Journal of Southeast Asian Economies, vol. 38, no. 1, 2021, pp. 24–50. JSTOR, https://www.jstor.org/stable/27035505. Accessed 5 Nov. 2023.. New York: W.W. Norton & Company Inc., 2020. Martin Chorzempa's The Cashless Revolution: China's Reinvention of Money and the End of America's Domination of Finance and Technology was published by W.W. Norton & Company Inc. in 2020. Khalil, Lydia. "Digital Authoritarianism, China and C0VID". Lowy Institute for International Policy, 2020. JSTOR. http://www.jstor.org/stable/resrep27665. Accessed November 4, 2023. Rugy, Veronique de. “Markets May Not Be Perfect, But Government Is Not Any Better.” Reason.Com, 20 Oct. 2022, reason.com/2022/10/20/markets-arent-perfect-but-government-is-worse/. Ovide, Shira. “Avoid Paying by Cash in China.” The New York Times, The New York Times, 27 Oct. 2020, www.nytimes.com/2020/10/27/technology/alipay-china.html. Bob Violino's article for CNBC reports that data privacy regulations are expanding worldwide and becoming more and more stringent. The piece, published on 22 December 2022, cites the example of the GDPR in Europe and the CPRA in California.

Source: https://medium.com/writ340econfall2023/the-cashless-revolution-learning-from-chinas-fintech-boom-8a8ed34754ef?source=rss------fintech-5