Monday, July 19, 2021
On July 16, we learned the People’s Bank of China was exploring cross-border payments in digital yuan. For all the controversies facing President Xi Jinping’s government – including doubts about a “V-shaped” recovery – PBOC officials were working quietly behind the scenes to float the first e-currency backed by the government of a top economy.
Though details have come in dribs and drabs, it’s generally believed that Beijing is aiming to introduce the digital yuan in time for the Winter Olympics in February 2022, at least for limited use. But recent days brought new developments that have a clear rubber-hitting-the-road quality.
Setting the stage for cross-border digital payments means fuller yuan convertibility might soon be a reality. There seems little logic to a China offering a “yuan-lite” in digital form for very long.
At the same time, the central government appears to be endowing local Shanghai officials with unprecedented freedom to enact local laws. And, equally important, to devise tax incentives and steps toward capital market liberalization.
This latter step could mean new key industries – from semiconductors, biotechnology to aviation to artificial intelligence – will enjoy a 15% corporate tax rate, well down on the 25% norm.
It could boost confidence among local business people and entrepreneurs and foreign investors alike. It also, by turning Shanghai into a giant special enterprise zone, could create a new model to be applied across mainland metropoles.
Either step would be a big deal for China’s evolving role as a global financial power. Coming together, it could be the Big Bang moment for which many global investors have been hoping and waiting for in the Xi era.
Good bye Hong Kong. Hello Shanghai.