China’s online payment restrictions as proposed appear to fly in the face of Premier Li Kequang’s ‘Internet Plus’ policy, because they envisage limiting online payments to 5,000 Yuan (US$787) per day (unless these are made though state-owned banks). The restrictions suggested on July 31st also limit individual online transaction values to 1,000 Yuan ($157) daily, clamping handcuffs on China’s third-party online and mobile payments market worth 8.0 trillion Yuan (US$1.2 trillion) annually.
The Bottom Line on China’s Online Payment Restrictions
Clearly, Beijing wants to get a handle on all those Yuan flying around, and consolidate its hold on a lucrative tax base. It also probably feels a need to balance online-offline markets, and increase control over immense cash flows that Alibaba and Tencent generate. For it to do anything else would run contra to Beijing’s central command and control policy. All very logical, but what will China’s proposed online payment restrictions do to the virtual and real economy?
How the New Rules Would Work in Practice
The one-month consultation on the proposed restrictions has closed without any signs of relenting by government. Under the new rules, third party payment agents would “no longer provide financial services in any form, such as cash deposits and withdrawals, money lending, funding, wealth management, guarantee services or currency exchange”. This is a major shift in digital culture.
The devil in the detail of China’s online payment restrictions states that those with less than two security measures will have a daily transaction limit of 1,000 Yuan. Having two or more plus verification raises this to 5,000 Yuan. All payment accounts will have annual limits between 1,000 and 2,000 Yuan. Providers must also obtain approval from the People’s Bank of China before launching new “innovative” internet payment products or services,
Will Alibaba and Tencent Survive China’s Online Payment Restrictions
The short answer is yes, because China is unlikely to switch off a mechanism that delivers the fruits of good governance efficiently in massive cities, and effectively to people living in far-flung rural areas. Thus Tencent and Alibaba, having reserves to adapt to anything will survive.
If anything they could be better off, secure in the knowledge that their lucrative markets are even harder to penetrate for newbies. But they will be more in the pockets of their masters than before, as they navigate their way through China’s online payment restrictions and find ways to adapt.