On this episode of China Uncensored,
China is going through a big change.
People are getting rid of their cash.
Not like that.
Hi, welcome to China Uncensored.
I’m Shelley Zhang—
the voice in Chris’s ear,
and your temporary host
until Chris realizes how much he misses
New York City in the winter.
Or we all move the show to Hawaii.
You know, when I was a kid,
I thought the future would bring us
robot maids and flying cars.
Instead, we got cats on Roombas
and the ability to pay for bus rides
with our phones.
If anyone from the flying car future
wants to trade,
call me.
Unless you’re also possibly about to
go to war with North Korea.
Anyway, the point is,
the future is now,
and it’s in China.
Because China is getting rid of old-fashioned cash—
in favor of paying for stuff with your smartphone.
Whether you’re at a vending machine;
a toll booth;
or....a literal meat market;
nothing makes you forget
how much you’re actually spending,
paying like scanning a QR code.
It’s faster than the speed of regret.
Mobile phone payment in China
has skyrocketed.
It was basically nothing in 2012.
By 2016,
it had reached more than 5 trillion dollars,
and it’s projected to be more than
10 trillion dollars this year.
One analyst predicts that China
will be effectively cashless in five to ten years,
and that this is a positive thing for business,
the government, and the public.
China is moving really fast on this.
Much faster than the US.
I mean, we do have it here too.
Like you how your iPhone keeps prompting you
to add ApplePay,
which you finally did—
but you still haven’t used it
because your credit card works perfectly fine.
Well, in China, most people don’t use credit cards.
The entire country basically skipped that step.
It’s partly for cultural reasons,
like having debt was seen as a bad thing.
It also didn’t help that Chinese officials
made it really hard for Visa and MasterCard
to access the Chinese market.
Americans still use mostly credit cards.
In 2016 Americans spent only $112 billion
through mobile payment apps like ApplePay.
That might sound like a lot,
but it’s not.
Chinese citizens spent 50 times as much
using their phones.
They’re not using ApplePay, though.
Most people are using one of only two
giant Chinese homegrown payment services:
AliPay and WeChat Pay.
WeChat Pay is owned by Tencent,
which created the WeChat app—
the all-knowing social media app
that’s constantly watching you,
as Chris showed in our episode on August 23rd.
AliPay is even bigger.
It’s owned by Ant Financial,
which I mentioned on Monday;
it failed in its bid to take over
an American company.
These two giant companies
have cornered China’s mobile payment market,
and they’re on track
to make billions of dollars from it.
Between the two of them,
in 2016 they processed as much as
$5 trillion in electronic payments,
which is equal to a third of China’s GDP.
Nearly all merchants in China’s biggest cities
allow customers to pay with AliPay and WeChat.
It’s so common that 14% of Chinese people
don’t even carry cash anymore.
Such a massive shift in how people spend money
will affect everything from China’s overall
economy and society down to
the life of your average Zhou.
The biggest benefit for Mr. Zhou is
of course, convenience.
Forget fumbling for your wallet,
just pay with your phone,
which you’re already holding,
all the time.
But convenience does come at a cost.
For one,
people tend to spend 12 to 18 percent more
when they don’t use cash.
I mean, when you can’t see the money
disappearing from your wallet,
it’s easy to lose track of
how much you’re spending...
on books...
and shoes...
and...I should probably return some stuff.
In addition to spending more,
all of Mr. Zhou’s spending is now tracked.
Something one would-be robber in Ningbo
found out the hard way.
After mugging a woman in an alleyway,
he discovered that she didn’t really
have a lot of cash.
So he forced her to send him money
using WeChat.
Which was genius.
Except for the fact that all WeChat accounts
require people to register with their ID,
so the police caught him immediately.
Well, first they laughed.
A lot.
He would have gotten away with it too,
if it weren’t for his own stupidity.
Remember, by Chinese law,
all Chinese companies are required to
share user data with the government.
Actually, AliPay founder Jack Ma
is already offering it up.
He talked candidly about helping
Chinese law enforcement in ways
that would make Silicon Valley cringe.
Like by letting Chinese police look at
what AliPay users buy,
and use patterns to identify potential criminals.
Do you really want the Chinese police
to be able to monitor everything you buy?
“Mr. Zhou, is there a reason you bought
a pressure cooker, an alarm clock,
and 52 pounds of dried squid
at 3 in the morning?”
I mean, a future where the Chinese government
can monitor my every move is kind of scary.
On the other hand,
mobile payment is pretty convenient...
and I’m already holding my phone...
But even if you’re not worried about
the party-state’s all-seeing eye,
there is the fact that two companies
have all of your data,
and they’re using it in ways
that you can’t control.
Both Tencent and Alipay have
recently had privacy scandals,
and people are not happy.
Now you might be saying,
“Sure, Shelley, cashless payments are just
another way that giant corporations
sell us convenience in exchange for
all of our personal information,
which then becomes another piece
of the Communist Party’s
panopticon surveillance system
from which there will be no escape,
yada yada yada.”
But what does this mean for China’s economy?
Well, in the short term,
it’s great for China’s economy.
Remember, people paying with their phones
spend more.
More spending is good for local businesses,
which circulates money,
which fits in nicely with the Party’s agenda
for restructuring the economy.
In October, Chinese leader Xi Jinping
said that for China to become
a modern economic powerhouse,
Chinese people need to
increase domestic consumption.
That is, they need to buy local stuff,
not just export it to the West.
We gotta hit that 6.5 percent growth target somehow.
But there are also some
potential pitfalls for the economy.
Remember how I said that Chinese people in the past
did not like debt?
Well, there’s been a huge surge of people
taking on debt in the last couple years,
because consumers are constantly being bombarded
with pitches for loans and investment products
via their smartphones.
Borrowing a thousand dollars is now easier
than getting to level 7 in Candy Crush.
China’s central bank expressed concern that
“short-term consumer credit in China
soared 160% in the first eight months of 2017
from a year earlier.”
If you watched our episode on shadow banking,
you know that China already has
a problem with consumer debt.
And this just makes it harder to rein in.
And then are concerns over
money laundering and fraud.
For example, in Guangzhou,
$14.5 million yuan were stolen
in QR code scams.
The good news is that the government
is cracking down on fraud and money laundering.
They’re putting in new regulations this year.
They want to start treating AliPay and WeChat
more like banks,
and set up a central clearing house
so regulators can more easily track
what’s actually going on with transactions.
That being said,
as mobile payments increasingly replace cash,
a lot of people will be left out of the system.
See, it’s easy to look at images
of middle class people in sparkling cities
and forget that most of China is still
really, really poor.
In the countryside,
the typical person lives off an average
of only $4 a day.
21% of Chinese don’t even have a bank account.
That’s like 300 million people
who have no way to access mobile payments.
That’s a lot!
It’s like the population of 12 Australias.
Or one America—
minus, let’s say, Texas.
Oh come on, Texans,
you keep saying you’re going to leave.
Back to China.
A lot of poor people will be left out of
the new cashless society.
But you know who else will be?
Tourists and other visitors.
Because you need to have a Chinese bank account
to use mobile payment services.
But the world is marching towards
a future of mobile payments.
China is leading the way.
Actually, if the US hadn’t rejected
AliPay’s takeover of MoneyGram
last week on security concerns,
we might have even seen it take off
much sooner in the US.
But even so,
the future is coming eventually.
I just hope it’s not the future
where they use it to predict crime.
So what do you think?
Leave your comments below.
Once again I’m Shelley Zhang.
See you soon.
Thanks for watching.
Chris will be back hosting again this Friday.
In the meantime,
click here on the left to see more
China Uncensored episodes about China’s economy.