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China's Shenzhen Giving Away Millions In Sovereign Digital Yuan To Test Technology And Boost Consumption

Winners will be announced on Sunday and can receive their digital 'red packet' by opening an e-wallet via official app The payouts can be used to make purchases at 3,389 designated shops in Luohu district from Monday

China's Shenzhen Giving Away Millions In Sovereign Digital Yuan To Test Technology And Boost Consumption

China's fastest-growing city will start giving local residents 10 million yuan (US$1.47 million) worth of the country's new sovereign digital currency via a lottery this weekend - the latest move in a series of trials to test and promote the new digital yuan.

Officials in Luohu district, Shenzhen, just across the mainland border from Hong Kong, are also hoping the handouts will spur local consumption.

Luohu will distribute a total of 50,000 digital "red packets" - gift envelopes traditionally given out during holidays and special occasions - with each containing 200 yuan (US$30). Any Chinese citizen living in Shenzhen can register for the lottery through iShenzhen, a blockchain-based public services application operated by the Shenzhen government.

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Winners will be announced on Sunday and can receive their red packet by opening an e-wallet via the official Digital Renminbi App, according to a statement by the Shenzhen government on Thursday night. The app is not yet available for public download, and it will be accessible via a link sent to the lottery winners.

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The red packets can be used to make purchases at 3,389 designated shops in Luohu from October 12-18. They cannot be transferred to other individuals, nor into a regular bank account, the statement said.

The digital yuan, known officially as the Digital Currency Electronic Payment (DCEP), is part of China's plan to move towards a cashless society. Unlike bitcoin and other cryptocurrencies, the DCEP is issued and backed by the country's central bank, the People's Bank of China (PBOC), and is designed as a digital version of the nation's currency.

Liao Qun, chief economist at China Citic Bank International, said the move will spur consumption to some extent in Luohu district, but what is more significant is the testing of the digital currency, as it shows that the general public has been granted access to the DCEP and are starting to use it in their everyday lives.

Dan Wang, chief economist at Hang Seng Bank (China), said one advantage of using the DCEP to spur consumption is that each yuan is likely to generate more sales - the so-called multiplier effect - than other types of indirect consumer subsidies.

A back-of-the-envelope calculation would suggest that this 10-million-yuan programme will generate at least 50 million yuan in total demand

Dan Wang, Hang Seng Bank (China)

"A back-of-the-envelope calculation would suggest that this 10-million-yuan programme will generate at least 50 million yuan in total demand," Wang said.

Another advantage of the digital currency is that regulators will have a complete record of where the money is spent, which will help them better design targeted economic stimulus programmes and coordinate industrial productions, Wang added.

The DCEP has been used in more than 1.1 billion yuan worth of transactions as part of a series of ongoing pilot programmes across the country in the past year. These have taken place in the cities of Shenzhen, Suzhou, Xiongan and Chengdu, as well as at venues for the 2022 Winter Olympic Games in Beijing, with 13 million transactions having been processed using the currency, according to Fan Yifei, deputy governor at the central bank.

The pilot programmes have made "positive progress", with more than 6,700 use cases implemented as of late August for transactions ranging from bill payments and transport to government services, Fan said at the Sibos banking and financial conference on Monday.

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Local companies such as Tencent and Ant Group, as well as US brands Starbucks, McDonald's and Subway, are also taking part in various pilot programmes, according to the PBOC.

More recently, the Chinese government has got creative in promoting the digital yuan. For instance, users will be able to buy collectable capsule toys from vending machines, according to the Nikkei Asia Review. Known as gashapon in Japan, the machines have become a fixture in Chinese shopping centres and entertainment venues, where they have become popular among young consumers.

Shanghai-based company Delfino has distributed these 5G-connected machines that support mobile payments via a QR code or near-field communication technology in areas where the PBOC is conducting tests.

During the coronavirus pandemic, the Shenzhen government also rewarded about 5,000 medical and health care workers involved in the treatment of the deadly virus with DCEP payments.

The PBOC has repeatedly said there is no official timetable for launching the digital yuan.

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