China Economy Forum

[TaiShang]

China’s UnionPay set to benefit from West’s sanctions on Russia

China’s UnionPay set to benefit from West’s sanctions on Russia

Red Square in Moscow, Russia on June 13 Photo: CFP

Photo: CFP



An ancient saying states that when two dogs fight for a bone, a third will run away with it. As such, the escalating conflict between Russia and Western countries is expected to result in closer economic ties between Russia and other countries, especially China.

There are opportunities in a wide range of sectors, such as energy, telecommunication and aviation. But growing trade volume relies on a well-developed payment system. Therefore, as traditional credit card giants Visa and MasterCard may lose ground amid the conflicts, China's UnionPay payment system is expected to gain ground.

The US and EU have imposed several rounds of sanctions on Russia so far over Russia's stance on the Ukraine crisis. But it seems that Russia is not likely to budge - on Wednesday it announced economic retaliation measures against Western nations, such as a ban on the import of agricultural goods from Western countries, which may also present an opportunity for Chinese companies.

As a result of earlier US sanctions, Visa and MasterCard blocked cards issued by Russia's SMP Bank and InvestCapitalBank in April.

This is not the first time that the two US payment systems had stopped offering services for Russian banks this year. Visa and MasterCard halted services for SMP Bank, InvestCapitalBank and several other Russian banks on March 21, but services for SMP Bank and InvestCapitalBank were resumed several days later.

The halt caused great inconvenience to Russia as it still does not have its own nationwide payment system.

A group of Russian tycoons who are close to Russian President Vladimir Putin were also sanctioned and have been banned from using Visa and MasterCard services. Gennady Timchenko, a Russian billionaire and an ally of Putin, switched to UnionPay after he was sanctioned by the US, Reuters reported on Tuesday.

Other major payment companies are now ready to take market share away from Visa and MasterCard in Russia. China UnionPay and Japanese payment system JCB are now in talks with leading Russian banks, media reported on Wednesday.
Seize the opportunityChina UnionPay has stepped up efforts to further tap into the Russian market recently. UnionPay International, a UnionPay unit focusing on international business, signed agreements in June with Russia's MTS Bank and a local travel association to facilitate the issuance of UnionPay cards in the country and further promote the brand.

On July 1, UnionPay International signed an agreement with Russia's Orient Express Bank to issue the first UnionPay premium credit card in the country.

The move aims to further move into the high-end credit card market in Russia. Orient Express Bank is one of the leading banks in the Russian Far East region, with its credit card market share ranking in the top 10, according to information on UnionPay International's website.

The company is expected to issue 2 million UnionPay cards in Russia in the next three years, media reported on July 23, citing the company's Russia representative Fan Jiguang.
Chinese businessmen and travelers abroad have been the major driving force for UnionPay internationalization before. But "to issue cards in a foreign country means an increasing number of foreigners are now using cards under the UnionPay system," Luo Yuding, a professor at Shanghai University of Finance and Economics, told the Global Times Wednesday.

"It is quite convenient to withdraw money with UnionPay cards in Russia, but in major shopping malls, UnionPay cards are still not widely accepted," Yu Xiaoguang, a 28-year-old Chinese who has been working in Moscow for over two years, told the Global Times on Wednesday.

UnionPay cards are now accepted by over 100,000 POS terminals and more than 30,000 ATMs in Russia and a total of 45,000 UnionPay cards have been issued in Russia, according to information on the company's website.

However, Visa and MasterCard together make up around 80 percent of the country's total payment cards, local news portal RIA Novosti reported on June 23.

'Technology support'After Visa and MasterCard stopped processing some Russian transactions in response to US sanctions, Putin announced in March that Russia should build its own national payment system in a bid to limit its exposure to political risks in the financial system.

On July 29, the Russian central bank announced it would create a national payment card system, without using existing structures. The new system is expected to start in 2015 and the first cards will be issued in a year and a half.

"This also presents an opportunity for UnionPay, as it could seek to provide technology support to Russia," said Luo from Shanghai University of Finance and Economics.

As the US and EU have imposed sanctions on Russia, some companies in the country have been moving cash holdings to Asian banks, recent media reports said.

Megafon, Russia's second-largest mobile phone operator, said on July 31 that it had converted its foreign currency deposits into rubles and Hong Kong dollars to protect the firm against any further sanctions, Reuters reported.

"UnionPay's international development should be accompanied by the overseas expansion of Chinese banks," said Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges.

Xu also said that such changes in Russia could also speed up internationalization of the yuan, the Chinese currency.

Despite the opportunities, Luo noted that UnionPay should pay attention to potential risks.

"Both Russian laws and laws from the US and the EU should be followed when it makes asset transfers denominated in US dollars or euros," he said.

Overseas aspiration Founded in 2002, China UnionPay has grown into a sizable payment system that has established a presence in over 140 countries and regions around the world and has issued UnionPay cards in over 30 countries and regions, according to information posted on its website.

In 2012, UnionPay International was founded to facilitate the company's overseas business.

Data from China UnionPay in June showed that total global transactions made via UnionPay in 2013 topped 32.3 trillion yuan ($5.25 trillion), ranking second among all payment systems. Visa still led the market with transactions worth 41.7 trillion yuan in 2013, while MasterCard ranks third with 25.1 trillion yuan in transactions.

But UnionPay's business still mainly relies on the China market. In overseas markets, Visa and MasterCard still account for a much bigger share.

"It will take time for UnionPay to catch up, but it has great potential," Luo said.

 

[Raphael]

Semiconductors represent one of the final rungs of the electronics industry. Once we master it, we will more or less be able to manufacture any gadget using entirely indigenous components, and the entire global market will be our playground. At that point, the only way we can lose market share is if we willingly offshore the lowest parts of the supply chain to places with cheaper labor.

 

[qwerrty]

another startup project from china. this will go very well with the oculus rift and sony's project morpheus

Project PERCEPTION NEURON by Team PERCEPTION / NEURON — Kickstarter

 

[OrionHunter]

Ooh I want one.

My smartphone is currently a Lenovo, I might hold on to it until this technology matures a bit more.

Then you may have to wait till your grand children turn grey.

 

[Echo_419]

I don't want a laser scanning my damn eye,let's wait & let the technology mature a little bit more

Ooh I want one.

My smartphone is currently a Lenovo, I might hold on to it until this technology matures a bit more.

In the ad,they say some lasers are gonna scan my eye,don't you think it is a bit dangerous

 

[zxmint]

I don't want a laser scanning my damn eye,let's wait & let the technology mature a little bit more



In the ad,they say some lasers are gonna scan my eye,don't you think it is a bit dangerous

It looks a little bit scary to some extend...but I think safety issues must be the most basic points to think of at the very beginning.

 

[Echo_419]

It looks a little bit scary to some extend...but I think safety issues must be the most basic points to think of at the very beginning.

I love my eyes man,i am sure you do to so let the product mature a bit & wait for some years

 

[Oriental vs West]

Nice holographic technology but if multiple phone cameras continually track your eye the whole day, it will drain the battery very fast

 

[ChineseTiger1986]

I thought Vietnam should be the one to do that, since China can't even feed itself according to our PDF Viet members.

China will start selling fruit and vegetables directly to Russia, and Baorong company plans to set up a special logistics center in Dongning on the border with Russia’s Far East to do it.

China to start direct sales of fruit and vegetables to Russia comments, page 9 — RT Business

 

[Edison Chen]

How China’s Trying to Boost Its Economy: ‘Qualitative Easing’

To describe the nature of China’s current monetary policy and to differentiate from that of the U.S. Fed, one economist has coined a new term: “qualitative easing.”

Professor Willem Buiter, chief economist at Citigroup, came up with the phrase to distinguish the Chinese central bank’s recent moves from the much better-known quantitative easing program by its U.S. counterpart.

Quantitative easing, which was adopted by the Federal Reserve as a powerful weapon to combat the global financial crisis, refers to an unconventional monetary policy to stimulate the economy when standard monetary policy becomes ineffective, especially when short-term interest rates have reached or are close to zero.

A central bank implements quantitative easing by buying specified amounts of financial assets from the market—chiefly U.S. government bonds in Fed’s case—to inject much-needed cash into an otherwise stressed financial system.

According to Mr. Buiter, China’s “qualitative easing,” on the other hand, occurs when a central bank adds riskier assets to its balance sheet without increasing the latter’s size, Citigroup economists wrote in a research note.

In China’s context, such so-called qualitative easing happens when the People’s Bank of China adds riskier assets to its balance sheet—such as by relending to the agriculture sector and small businesses and offering cheap loans for low-return infrastructure projects—while maintaining a normal pace of balance-sheet expansion.

To revitalize a slowing economy, Beijing in recent months has adopted “mini-stimulus” measures such as loosening credit for rural banks, expanding loans to smaller borrowers and reducing fees and taxes for businesses.

The purpose of China’s qualitative easing is to provide affordable financing to select sectors, and it reflects Beijing’s intention to dictate interest rates for some sectors, Citigroup’s economists said. They added that while such a policy would also put inflationary pressure on the economy, the impact is less pronounced than the U.S.-style quantitative easing.

The enthusiasm about semantics among economists recently was reawakened after Chinese state media reported that the PBOC had covertly extended 1 trillion yuan ($162 billion) to the China Development Bank under a new lending tool called the Pledged Supplementary Loan, or PSL. The money was meant to help the bank renovate shanty towns across the country as a way to arrest stalling economic momentum. Some economists and investors interpreted the move as a Fed-style quantitative easing and expressed concerns about the unwelcomed, long-term inflationary impact of such a policy.

However, other economists, including Citigroup’s, argue that the PBOC’s balance sheet doesn’t show an exceptional increase in loans to banks, and they say the PBOC may have simply offered a much smaller credit line to the development bank.

Instead of quantitative easing, “qualitative easing—aimed at lowering the financing cost of the real economy—appears more likely,” they said.

While it’s linguistically and semantically fashionable to compare Beijing and Washington’s respective QEs, the differentiation also carries implications for understanding and investing in China.

The country’s economy recently has shown signs of a recovery. After falling for much of the year, the yuan has resumed a trend of appreciation, while the country’s long-depressed stock market also has rallied.

“We think improving growth prospects and already-accommodative credit conditions make the talk of [quantitative easing] far-fetched,” Citigroup’s economists wrote.

The PBOC’s surprise move on July 31 to let the interest rate on a short-term money-market loan to commercial lenders drop for the first time this year was also a clear sign of qualitative easing, whose ultimate purpose is to lower financing costs in the real economy, they said. But at the same time, the PBOC has started withdrawing cash from the financial system, suggesting that the central bank has no appetite to flood the market with liquidity, as the U.S.-style QE typically would do.

A significant implication of Beijing’s QE is that if the policy transmission in the broader economy turns out to be ineffective, the PBOC may resort to cutting benchmark interest rates directly, arguably the most authentic and powerful form of monetary policy easing.

Despite such a hypothesis and favorable circumstances such as a benign inflation outlook, a sustained rebound of the Chinese economy would make a rate cut less likely, Citigroup’s economists cautioned.

Another slightly negative implication of China’s own QE policy is that it runs counter to Beijing’s effort to gradually liberalize the country’s rigid interest-rate policy.

Artificially depressing financing costs in certain parts of the economy—such as by issuing cheap loans via new tools like the PSL to select sectors—effectively adds another layer of interest rates in the economy, which could further complicate and even handicap the PBOC’s efforts to make its monetary policy more effective in the long run.

–Shen Hong

How China’s Trying to Boost Its Economy: ‘Qualitative Easing’ - China Real Time Report - WSJ

 

[terranMarine]

And i thought they were Russians best buddies

 

[Edison Chen]

I thought Vietnam should be the one to do that, since China can't even feed itself according to our PDF Viet members.

VN should help their best buddy, by exporting pho

 

[Huaren]

I thought Vietnam should be the one to do that, since China can't even feed itself according to our PDF Viet members.

Viets need the support of the US & co. against China, and if they help Russia they might ruin their previous efforts. And considering the fact of being cornered by pretty much the whole developed world, it is quite unlikely for russians to do anything against China in the foreseeable future, certainly not while being cointained themselves. So it is quite easy to understand,
even the new best pal of the viet - Japan has abandoned all the hard work to build up understanding with the russians and joined with the camp of the "willing" (as it was expected of them).
As things are standing now, China, southern american nations and maybe some southeastasian nations ( local western "allies" like Philippine less likely) will send some supports to the Russians, Indians might do something as well if they are able to and willing. For the viets if they are looking for the best way against China they might as well as to sit this one out

 

[Edison Chen]

China's first Robot Restaurant opens in Kunshan, east China's Jiangsu province on Friday, the Yangtze Evening News reports.

The restaurant has a total of 15 robots in heights of 1.2 meters. Each robot costs 40,000 yuan (6500 US dollars).

As doormen, cooks and waiters, the robots can work continuously for eleven hours after a night charge, and are able to use 40 basic language expressions, such as welcoming sentences to customers.

 

[Cyberian]

Does China not export any fruits and vegetables already to anyone?