(Bloomberg) -- As China moves closer to rolling out the world’s first major sovereign digital currency, speculation over the global implications has reached a fever pitch.Historian Niall Ferguson is calling the digital yuan a “potentially fatal challenge” to decades of American financial hegemony. Franklin Templeton’s Michael Hasenstab says it could undermine the dollar’s role as the world’s reserve currency. Joe Biden’s White House is studying the potential threat to U.S. interests.Yet talk to people who’ve actually used the digital yuan in China, and you’re more likely to get a different response: shrugs of indifference.In Shenzhen, the high-tech metropolis that just extended China’s largest digital yuan trial, participants interviewed by Bloomberg showed little interest in switching from mobile payment systems run by Ant Group Co. and Tencent Holdings Ltd. that have already replaced cash in much of the country. Some balked at the possibility a digital yuan might give authorities easier access to real-time data on their financial lives.“I’m not at all excited,” said Patricia Chen, a 36-year-old who works in the telecom industry and was one of the more than 500,000 people in Shenzhen eligible to take part in the trial.While none of the seven participants who spoke to Bloomberg professed insight into the digital yuan’s future role in global foreign exchange markets, their lukewarm response underscores the challenge facing President Xi Jinping’s government as it lays the groundwork for adoption at home and abroad.Even if authorities ultimately convince -- or compel -- citizens to embrace the digital yuan, it’s far from clear they can do the same with international consumers and businesses already wary of China’s capital controls, Communist Party-dominated legal system and state surveillance apparatus.Those are just some of the concerns that have capped the yuan’s share of global payments at around 3%, well below levels commensurate with China’s contribution to world trade and economic output. A digital version of the currency is unlikely to boost its share by much more than 1 percentage point, according to Zennon Kapron, managing director of Singapore-based consulting firm Kapronasia.“The global impact will be very small” barring structural changes to China’s economy and financial system, said Kapron, author of “Chomping at the Bitcoin: The Past, Present and Future of Bitcoin in China.”Many China watchers suspect Xi has high hopes for international use of the digital yuan as he tries to lessen his country’s reliance on the U.S.-led global financial system. But so far at least, Chinese policy makers have given mixed signals about their ambitions in public.Zhu Jun, head of the central bank’s international department, said in an article last month that China faces an “important window” to promote global use of yuan as U.S.-China decoupling threatens to spread to finance from trade, technology and investment. She said China “should take advantage of the early progress” in the digital yuan’s development to explore potential areas for internationalization.Meanwhile, People’s Bank of China Deputy Governor Li Bo told the Boao forum last month that the digital yuan, also known as the e-CNY, is aimed at domestic use and isn’t meant to replace the dollar.The project was started in 2014 by then-PBOC chief Zhou Xiaochuan, a longtime proponent of creating a new international reserve currency as an alternate to the dollar. Zhou saw the e-CNY as one way to fend off potential threats from digital currencies like Bitcoin or Facebook’s Diem (formerly called Libra). Chinese regulators, who banned cryptocurrency exchanges in 2017, have also said the digital yuan will help combat money laundering and increase financial inclusion.Other use cases are more controversial. The reams of data produced by digital yuan transactions could give China’s central bank valuable real-time insights into the world’s second-largest economy; they might also be used by security services to monitor political dissidents or international businesses that compete with state-owned Chinese enterprises.A programmable version of the currency allowing for expiration dates on stimulus payments could encourage spending during economic downturns -- or enable regulators to instantly turn off the e-wallet of anyone who runs afoul of Beijing. While global adoption of e-CNY could make cross-border payments cheaper and faster, it might also help the Communist Party weaken the impact of international sanctions. The PBOC has so far offered few details about how the e-CNY might be used overseas, other than to say it’s conducting cross-border tests with Hong Kong’s de-facto central bank.The domestic trial that began in Shenzhen last month was by far China’s most ambitious to date. Participants who downloaded the government’s e-wallet app on their phones and linked it to their bank accounts could transfer as much as 10,000 yuan ($1,548) into e-CNY at a one-for-one rate. Similar to Ant’s Alipay and Tencent’s WeChat Pay, transfers using digital yuan take place almost instantly via QR code. They can also be conducted with near-field communication technology in the absence of an internet connection.Using the digital yuan was easy enough for Vera Lin, a 25-year-old who works at a financial company in Shenzhen. At the same time, she said, incentives for making a permanent shift to e-CNY are lacking given China’s existing digital payment options are reliable and work seamlessly with other app-based services from social media to e-commerce platforms.Even discounts of as much as 10% from merchants participating in the digital yuan trial weren’t enough to win Lin over. Platforms operated by companies like Ant routinely offer discounts on everything from ride-hailing services to grocery delivery.Privacy concerns were among the turnoffs for Jan Chen, a 33-year-old civil servant. It’s “a little scary” that authorities might be able to trace every payment, she said. In a country where compliance with tax laws is often patchy, some merchants may also be wary of their transactions flowing directly into a government database.The PBOC has tried to quell those concerns by making the digital yuan free to use for merchants –- which currently pay service fees of around 0.6% for transactions on Alipay and WePay -- and by pledging that most payments will remain anonymous.The central bank won’t directly know the identity of users, though the government would be able to get that information from financial institutions in cases of suspected illegal activity, Mu Changchun, director of the central bank’s Digital Currency Research Institute, said in March.If the digital yuan fails to gain traction over the long term, China’s government might turn to coercion, according to Kapron. It has already started taking steps to assert more control over the data gathered by financial and tech companies including Ant and Tencent. “At the end of the day, I think it’s going to have to be the government saying: ‘You have to use this,’” Kapron said.Even if policy makers don’t go that far, they may ask merchants and Internet platform operators to add the digital yuan to their suite of payment options, according to Francis Chan, a senior analyst with Bloomberg Intelligence. Ant-backed MYbank was listed as an option on the e-CNY app as of Monday, though it was unclear if users could link their Alipay wallets. Tencent-backed WeBank was also listed as an option but was grayed out and unavailable.Chan and fellow BI analyst Sharnie Wong predict the digital yuan will be in use nationwide before the Beijing Olympics in 2022 and comprise 9% of China’s domestic digital payments by 2025. That’s no small change, but still a long way from challenging the dominance of Alipay and WePay, which are estimated to have a combined market share of more than 90%.Persuading the world to embrace the digital yuan will be even harder. “The e-CNY addresses just one layer of it, the payment infrastructure part,” said Michael Ho, principal of financial services at Oliver Wyman. “But just tacking on this one layer will not solve the entire puzzle.”(Adds PBOC official’s comments in 11th paragraph and MYbank linking to e-CNY app in 23rd paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Zhang Yiming built ByteDance Ltd. into the world’s most valuable private company via a string of blockbuster apps like TikTok that challenged Facebook and other incumbents on their own turf. His latest target: Alibaba.The 38-year-old AI coding genius, searching for ByteDance’s next big act, has set his sights on China’s $1.7 trillion e-commerce arena. The co-founder has hired thousands of staff and roped in big-name sponsors like Xiaomi Corp. impresario Lei Jun to drive what he calls his next “major breakthrough” into global business -- selling stuff to consumers via its addictive short videos and livestreams. That endeavor will test not just Zhang’s magic touch with app creation and ByteDance’s AI wizardry, but also investor reception ahead of one of the tech world’s most hotly anticipated IPOs.His startup is already starting to make waves in an industry long controlled by Jack Ma’s Alibaba Group Holding Ltd. and JD.com Inc. It sold about $26 billion worth of make-up, clothing and other merchandise in 2020, achieving in its maiden year what Alibaba’s Taobao took six years to accomplish. It’s shooting for more than $185 billion by 2022. Douyin, TikTok’s Chinese twin, is expected to contribute more than half of the firm’s $40 billion domestic ad sales this year, driven in part by e-commerce.“Short video platforms have so much traffic that they can basically do any business,” said Shawn Yang, managing director of Blue Lotus Capital Advisors. “Douyin is not only in ads, but also live-streaming, e-commerce, local life services and search. This has a lot of room for imagination.”A burgeoning e-commerce business could help the firm surpass its $250 billion valuation when it goes public, countering concerns around Beijing’s crackdown on the country’s internet behemoths. Preparations are said to be underway for a listing that would be one of the world’s most anticipated debuts. The startup is working with advisers on the offering and is choosing between Hong Kong and U.S. as the listing venue, people familiar with the matter have said. While ByteDance won’t handle sales or merchandise itself, it hopes to sell more ads to merchants, boost traffic and take a cut of business.Read more: ByteDance Is Said to Kick Off IPO Preparations for China AssetsThe internet giant is a late entrant to China’s social commerce scene, where influencers tout products to fans like a Gen-Z version of the Home Shopping Network. The format, pioneered by Alibaba as a marketing tool in 2016, developed a life of its own last year when Covid-19 spurred demand for at-home entertainment. Last year, Alibaba’s Taobao Live generated over 400 billion yuan ($62 billion) of gross merchandise value and Kuaishou Technology’s social platforms hosted 381 billion yuan of transactions, more than double Douyin’s.ByteDance is counting on its artificial intelligence-driven, interest-based recommendations to help its e-commerce business catch up. In a splashy coming-out party for the one-year-old business last month, executives explained that the company intends to replicate its success with using AI algorithms to feed users content in online shopping. By scrolling an endless stream of social content, now connected with physical goods more than ever, Douyin users won’t be able to resist their impulse to buy, they said.It’s “sort of similar to shopping on the street,” Bob Kang, Douyin’s 35-year-old e-commerce chief, told an audience of hundreds at the Guangzhou event. “As people get richer, they don’t go to shopping malls or boutique stores with specific things in mind, they just buy if they see something they like.”Kang, a former Baidu Inc. engineer who was poached by ByteDance in 2017, is one of a slew of fast-rising young lieutenants tasked by Zhang to break new ground for the company. He was previously the tech lead for ByteDance’s Helo app, one of India’s most-used social platforms for sharing content like videos -- until the South Asian nation shut it down along with dozens of Chinese apps last June on national security grounds.Since Kang took over as e-commerce head, Douyin has banned live-streamers from selling items listed on third-party sites and invited them to open their own in-app stores, preventing rivals like Alibaba and JD.com Inc. from profiting off its traffic. He grew a team of customer support staff from just one hundred to about 1,900 to fight counterfeits and is hiring for more than 900 other positions to support the business. ByteDance also has an online matchmaking system that helps connect merchants with influencers and their agencies, and it’s set up physical bases to house live streamers and merchandise, similar to what Alibaba does.The initiative gained traction from celebrity endorsers like Lei, the Xiaomi founder who has hosted livestreams promoting his Mi TVs and smartphones. Luo Yonghao, a once high-flying entrepreneur who had sought to challenge Apple Inc. with his smartphone business, is another top influencer, shifting more than $17 million of merchandise in his first-ever livestream on the platform.Smaller merchants are following their lead, like Zhou Huang, who set up a Douyin storefront for her jewelry business in October, bypassing conventional platforms like Alibaba’s Taobao. Instead of stumping up hefty fees to platform operators for traffic, she’s managed to amass a fan base of about 20,000 by creating videos that offer practical tips like how to choose the right size when buying a bracelet online.“It’s challenging for brand new merchants like me to attract customers on Taobao,” says Huang, whose Douyin store broke even after just three months. “Sometimes, people come to our store not for shopping, but for entertainment. But once we have enough visitors, we can make a sale.”ByteDance is lending a hand. In Foshan, Huang and 200 other jewelry sellers are coached on everything from registering a store and marketing to shooting quality videos. Around-the-clock technical assistance is available: Huang says that whenever her livestream channel goes down, ByteDance technicians immediately come to the rescue.Huang is one of about 1 million creators who have generated e-commerce sales on Douyin as of January, drawn to the platform’s 600 million-plus daily users. The platform -- which brings in commission fees from merchants as a new revenue stream -- aims to have more than a thousand brands this year join the likes of Suning.com Co. in setting up stores on Douyin, and that number could increase fivefold by 2022, the company predicted in an internal memo. GMV may grow to as much as 600 billion yuan this year before doubling to 1.2 trillion yuan in 2022.Read more: Leaked ByteDance Memo Shows Blockbuster Revenue Projections ByteDance’s ambitions aren’t limited to Alibaba. The firm has also started to let users book hotels and restaurants through Douyin, offering lifestyle services similar to super-apps like Meituan and Tencent’s WeChat.Douyin’s e-commerce foray in China may offer a roadmap for TikTok, which has begun testing the waters in online shopping through tie-ups with WalMart Inc. and Canadian e-commerce firm Shopify Inc. Back in December, Zhang told global employees that e-commerce, when combined with live-streaming and short videos, offers an even bigger opportunity outside China, according to attendees who asked not to be identified. The company has also been quietly building a team of engineers in Singapore to grow TikTok’s nascent e-commerce operations.ByteDance’s push into online shopping comes as its other businesses face headwinds. To grow video gaming, ByteDance has been buying development studios but churning out blockbuster hits like Tencent Holdings Ltd.’s Honor of Kings could take years and China has previously cracked down on the industry in fits and starts. In online tutoring, regulators have sought to rein in excess marketing and competition is fierce against a slew of deep-pocketed startups like Alibaba-backed Zuoyebang.In April, Zhang’s firm was one of 34 corporations ordered by the antitrust watchdog to conduct internal investigations and rectify excesses. And though its payment service has only just gotten off the ground, ByteDance and its peers were slapped with wide-ranging restrictions on their fast-growing financial operations following a meeting with regulators including the central bank last month.But the same scrutiny could help the TikTok owner make inroads into China e-commerce, the largest online marketplace in the world. Alibaba has held off rivals JD.com and Pinduoduo Inc. over the past decade allegedly through practices like forcing merchants into exclusive arrangements. Regulators have since levied a record $2.8 billion fine on Jack Ma’s flagship firm and made eradicating “pick one from two” one of the main goals of its antitrust campaign, creating room for up-and-comers like ByteDance.For now, the biggest and most immediate boost from ByteDance’s expansion into e-commerce is in advertising revenue, which still accounts for the bulk of its earnings. As the number of merchants on Douyin increases, so has their marketing spending within the platform. The firm projects that e-commerce may surpass gaming to become the biggest contributor to ad sales. At rival Kuaishou, merchants contributed about 20%, the company said in March.“It’s more about getting greater share of advertising spending from brands that would otherwise be spending money on platforms like Alibaba,” said Michael Norris, a senior analyst with Shanghai-based market research firm AgencyChina. “This is where the threat to Alibaba comes from.(Adds details on potential listing venue in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Facebook Inc.’s internal rules for banning content are a “shambles,” and the company needs to fix the process to have credibility in enforcing them, a member of the social media giant’s independent content oversight board said.The comments by Michael McConnell, the panel’s co-chairman, follow its decision last week to leave in place a ban on former President Donald Trump for his posts surrounding the storming of the U.S. Capitol by his supporters on Jan. 6.“Their rules are a shambles,” McConnell said on “Fox News Sunday.” “They are not transparent. They are unclear. They are internally inconsistent.”“We gave them a series of recommendations about how to make their rules clearer and more consistent,” McConnell said. “The hope is that they will use the next few months to do that and then, when they come back and look at this, they will be able to apply those rules in a straightforward way.”Facebook upheld its ban on Trump for six months. The company suspended his account after Trump encouraged his supporters to storm the Capitol in what became a deadly attempt to stop the counting of Electoral College votes for President Joe Biden. The ban was originally temporary, but was changed to an indefinite suspension the following day.‘Egging On’ McConnell also said Trump’s posts were a “plain violation of Facebook’s rules” against praising dangerous individuals and organizations during a time of violence.During the Jan. 6 riot, Trump “issued these statements which were just egging on -- with perfunctory asking for peace, but mostly, he was just egging them on to continue,” McConnell said. Members of both parties in Congress have called for breaking up large tech companies, arguing that they exert monopolistic power on the marketplace, censor certain voices, and hold back innovation. Conservatives, including Republican Senator Josh Hawley of Missouri, have called for breaking up Facebook over Trump’s ban.Private CompanyMcConnell, a constitutional law professor at Stanford University and former federal judge, dismissed concerns that Facebook was violating Trump’s First Amendment rights by leaving the ban in place, saying the social media giant is a private company.“He’s a customer,” McConnell said. “Facebook is not a government and he is not a citizen of Facebook.”A lack of consistency and transparency around Facebook’s content rules do, though, contribute to questions about bias and unfairness, he said.“Fairness and consistency are absolute bedrocks of freedom of expression rules,” McConnell said. “If Facebook simply let Mr. Trump off the hook completely, it would not be equal treatment of everyone because all users of the platform are subject to the same set of rules, and that includes Mr. Trump.”McConnell dismissed concerns from Hawley and others that he and other members of the oversight board are “toadies” for Facebook because the company’s CEO Mark Zuckerberg appointed them.“I’ve gotten to know these 20 people around the world and the danger that they are toadies for Facebook is just about zero,” McConnell said, referring to the other members of the board. “Many of them have spent their careers criticizing Facebook. We are not beholden to Facebook.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.