A sign indicating digital yuan, also referred to as e-CNY, is pictured at a shopping mall in Shanghai

China uses digital yuan to stimulate Covid-hit consumption

Image credit: Reuters/ALY SONG

China is using the digital yuan currency to stimulate consumption in its pandemic-hit economy, with more e-CNY applications expected in future to boost transparency and effectiveness of government policies.

The southern city of Shenzhen started distributing 30 million yuan (approximately £3.7m) worth of free digital cash on Monday to revive consumption and aid businesses. The move comes days after Xiong'an New Area, in northern Hebei province, launched a similar campaign to hand out 50 million yuan (approximately £6m) worth of e-CNY 'red packets' as gifts.

China is actively developing a central-bank digital currency. Issuing these e-CNY subsidies has the dual purpose of encouraging consumption and further promoting use of the electronic yuan.

Transactions using e-CNY totalled 87.6 billion yuan (approximately £10bn) at the end of 2021, with 261 million individual e-wallets opened, according to the central bank.

"Previously, when the government issued subsidies, there could be certain obstacles before the money reaches the recipients," said G Bin Zhao, senior economist at PwC China. "With e-CNY, the cash directly lands into your hands."

Zhao added that in the future, the government can use e-CNY for pension payments, fiscal subsidies and even infrastructure spending.

Xia Chun, chief economist at wealth manager Yintech Investment Holdings, said that compared with traditional means, e-CNY is more efficient and swift when it comes to subsidies, although he feels the size of the current consumption stimulus is too small.

Lin Yifu, an economist at Peking University said in a speech earlier this month that China should hand out 1,000 yuan (approximately £120) to each family in locked-down areas, half of which could be in digital yuan.

In the latest campaign, consumers in Shenzhen can join a lottery for the free e-CNY, which can be used to shop online or at stores. In Xiong'an, digital cash subsidies can be used to buy products including food, electronic appliances and furniture.

This financial push comes as Shanghai has announced that all residents in 'low-risk' areas can return to work from 1 June. City officials said today (Tuesday 31 May) that Shanghai will move into a normalised epidemic-control phase from Wednesday and will allow malls and shops to reopen and people in 'low-risk' areas to return to work.

Railways will also resume normal operations and the number of domestic flights to the city will increase, vice-mayor Zong Ming told an online press conference, adding that they will also look to adjust passenger load factors.

However, public venues will still need to cap people flows at 75 per cent of capacity and people will need to show a negative PCR test taken within the last 72 hours to enter.

Shanghai formally announced an end to its two-month lockdown on Monday.

Global supply chain issues, already badly affected by the pandemic and most recently exacerbated by the Shanghai lockdown, are discussed in the latest issue of E&T magazine as we look at how e-commerce offerings have been greatly accelerated by AI technologies.

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