The challenge of Chinese digital payment networks
The challenge of Chinese digital payment networks
WRITTEN BY FELIX GARTEN
10 September 2021
The digitalisation of trade and finance has increased interdependence between countries. However, the assumption that these relationships are mutually beneficial and lead to fewer power asymmetries between states is a false promise of globalisation. We see governments taking more conflictual measures after increases in digital interdependence.
In recent years, several governments around the world have banned or raised concerns about Chinese digital platforms operating in their countries. In 2014, Vietnam accused China of controlling and censoring information generated on Baidu in Vietnam. Other countries, such as the United States and India, have recently banned Chinese digital platforms for similar reasons. In May 2021, the Belgian Minister of Justice expressed concerns that a logistics hub run by Alibaba (the electronic World Trade Platform, eWTP) at Liège Airport could be subject to the Chinese security apparatus and provide the Chinese government with “sensitive commercial and personal data”. Policymakers in liberal democratic countries are increasingly worried that autocratic states may use digital networks to exert power over other states.
Chinese-owned companies that use a Chinese digital payment platform outside of China also must adhere to the standards set by this platform. This could further be extended to companies and businesses that are not Chinese-owned but depend on the platform.
Together with Ant Financial, Alibaba already controls logistics, payments, and e-commerce via large investments in Southeast Asia, especially in Thailand, Indonesia, Singapore, and Malaysia. The expansion of Chinese digital payment companies is part of a comprehensive digitalisation strategy — the Digital Silk Road (DSR) — with the vision to globalise digital trading and payment platforms. In March 2017, during the launch of the eWTP between China and Malaysia, the former head of Alibaba, Jack Ma, stated: “For human beings, the first globalisation was the Silk Road… today in the Internet [age], I think we should transfer the Silk Road to an e-road”. Private companies based in China, for example, Ant Financial (Alipay) and, to a much lesser extent, Tencent (WeChat Pay), are driving the development of the DSR. The Chinese government’s authority over Chinese digital payment companies, which includes expanding platform regulations beyond their borders and guaranteeing access to data implies that China can use its networks for geopolitical objectives.
China’s authority over payment platforms
China’s state capitalism and capital markets are a combination of “top-down state coordination and bottom-up market competition”. While the government allows private capital actors to behave similarly to neoliberal private capital actors with profit-driven speculations, the state interferes in capital markets to implement its objectives, which include getting access to data. The discussion about Jack Ma’s disappearance earlier this year illustrates that the Chinese government is increasing pressure on the private sector to control influential Chinese private companies with large pools of financial data.
Given the close relationships between government and digital companies, Beijing’s access and use of data for economic and political purposes may not be surprising. Financial technology companies, such as Ant Financial and Tencent, organise party committees within their companies to show that they are willing to follow party objectives. The Chinese Communist Party (CCP) also has financial stakes in digital companies, which allows it to claim representation on their boards and thus influence strategic and operational decision-making at the top level.
The Chinese government and digital payment platforms also have very similar views on how to use private data. Neither side values users' data privacy, which allows them to use data for political and economic purposes, and to not only surveil Chinese citizens but also citizens and governments in foreign countries. China’s National Intelligence Law, which took effect in 2017, requires Chinese companies operating internationally to provide the government’s intelligence apparatus with information. Chinese intelligence services gather information from financial data and inform Chinese foreign policy strategies in Leading Small Groups (LSG), where they connect with central figures of China’s central decision-making body, such as the Politburo and the Standing Committee of the CCP. Chinese executives are experiencing pressure from the government to comply with the National Intelligence Law.
After reactions in democratic countries, such as the United States, India and several European countries, against Chinese tech firms, China drafted a new Data Security Law in 2020 that confirms the legal application of data access and provides a legal basis to refuse data access prohibitions outside of China. Data Protection Authorities of the European data and privacy regulation, the General Data Protection Regulation (GDPR), lack the capacity to enforce the regulation for digital companies operating in Europe, due to shortages in “human, technical and financial resources”. China could have the advantage to push for its regulatory system and therefore ensure access to data outside of China. This step helps to ensure the CCP’s control of “internal and external environments” minimising potential threats for the party regime.
The false promise of cyber sovereignty
In 2020, Freedom House reported that countries are increasingly building national walls to control data flows and the free flow of information. However, the network of digital payment platforms could drill holes in these walls. If a country does not possess a well-defined regulatory framework that protects data privacy and security, it could become subject to the regulations of the digital payment platform, which is one of the risks in Southeast Asian countries. Instead of promoting the cyber sovereignty of a country, Chinese platforms could expand China’s cyber sovereignty claims in those countries.
Beijing is already expanding data and privacy laws beyond its national jurisdiction. In theory, Chinese users travelling outside their country are still subject to Chinese data and privacy laws. Chinese-owned companies that use a Chinese digital payment platform outside of China also must adhere to the standards set by this platform. This could further be extended to companies and businesses that are not Chinese-owned but depend on the platform. There is a danger that the regulatory system within other countries is slowly shaped towards a regulatory system that suits China’s geopolitical interests. For example, if we in the EU do not possess the capacity to punish violations of our privacy and data regulations, Beijing has the opportunity to set its rules as standards.
China could use financial platforms as a panopticon to understand the dynamics of a domestic market and further bind the country to its own market. Beijing could thus slowly manipulate the dynamics in a domestic market, for example, by promoting Chinese products via payment platforms and discouraging payments for competing products. In dependency relationships with Chinese digital payment platforms, this could mean that companies using these platforms could even be subject to choke points where they either lose access to the financial network or face financial sanctions if they do not act according to China’s vision.
Xi Jinping stated in April 2018 that China should become a “cyber superpower” setting the rules for cyber governance. One essential element in its cyber governance strategy is the goal of increasing “Beijing’s power to surveil and control the dissemination of economic, social, and political information online”. Beijing is expected to implement this goal through bilateral relationships under the BRI. Chinese digital platforms should be a helpful tool to fulfil this interest. In terms of China’s expanding network of payment platforms, this could mean that Beijing is creating a large sphere of control that is reinforced by the current cyber governance policies China pursues in other countries.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.
Author biography
Felix Garten is a Doctoral Researcher at the Berlin Graduate School for Global and Transregional Studies (BGTS) at Freie Universität Berlin and the Hertie School. Image credit: Unsplash/Scott Stefan.