Finding out that China was the first nation to introduce banknotes comes a surprise to many and it tends to come as even more of a surprise for the average Western observer to hear that yes, China is genuinely on the verge of becoming a cashless society, with over two-thirds of its citizens having switched to digital payments completely.
The worldwide leader as a percentage of the population that has gone completely digital is Sweden, a country which aims to be completely cashless by the year 2023. In nominal terms, however, even if this is to a large degree a function of its 1.4 billion population, China is the leader by far. This leaves many Westerners scratching their heads, especially Westerners who are accustomed to other realities of China, such as the significant gap between rural and urban regions.
How does one reconcile that steep gap with… digitalization?
On the one hand, it is true that “pitching” the idea of a cashless society to let’s say a pensioner from Western China who receives a mere $13 monthly tends to be Herculean task. And yes, rural areas tend to lag behind urban areas with respect to the monetary dimension of digitalization. On the other hand, these realities do not change the fact that at this point in time, over 66.5% of those who live in rural areas are using digital payment solutions. Still lower than the roughly 77% percentage for China as a whole and the even higher percentage for urban areas but still, nothing short of remarkable.
This has been made possible for a wide range of reasons:
- It is fairly easy to transact through services such as WeChat Pay or Alipay, with more than 2/3 of all online sales conducted through these methods and approximately 1/3 of offline sales
- Players such as JD and Alibaba making it not just possible but downright easy for even farming-specific transactions to take place
- There are many non-payment-related advantages associated with going cashless, for example how much easier it has become to gain access to financing
- The authorities are doing everything in their power to bring the very basics in terms of Internet infrastructure to the roughly 40% of Chinese citizens who live in rural areas. When it comes to the urban dimension, we are already dealing with infrastructure which is at or above Western standards in quite a few cases
However, it is important to also factor on the cons associated with this phenomenon:
- Even with Internet access and the infrastructure it takes to conduct transactions digitally, many Chinese consumers are anything but sophisticated and, unfortunately for them, a wide range of scammers have been even quicker than them to adapt to the digital realities of China. Credit card fraud and various other scams run rampant
- Of course, the Chinese authorities love the idea of a cashless society because digital transactions are multiple orders of magnitude easier to track than cash transactions. This even raises questions with respect to human rights in Western societies, it should come as no surprise that this is especially concerning when it comes to China
- The poorest citizens of China end up being even more socially and economically excluded than they were in the past. People who are not even able to read and write, much less install applications on their phones and figure out the subtleties associated with going fully digital
- The cashless society being fully dependent on a well-functioning Internet infrastructure. Should any kind of meaningful disruption occur (for “natural” reasons such as solar flares or more down-to-Earth reasons such as cyberattacks), the not just social and economic but downright humanitarian consequences are difficult to quantify
Love it or hate it, the idea of a cashless society has never been closer. Even in China or, as this article makes clear, especially in China. Technologically speaking and from the perspective of Internet-related infrastructure, this is already possible. While challenges still exist, in China and elsewhere, we as economic observers need to come to terms with the fact that it is no longer a matter of “if” but rather “when” cashless transactions will become the status quo everywhere in the world.
Needless to say, investors who position themselves accordingly by gaining access to Chinese assets that have to do with entities which are well-positioned so as to be on the receiving end of this reality are poised to do quite well. Should you or your organization be in need of assistance so as to do just that, visit the Consulting section of ChinaFund.com to find out how we can be of assistance.