While wealthy mainlanders now flock to buy Gucci shoes and mobile phones, trade shares and ? at national level ? purchase Boeing engines and factory lines, the payment system backing up these transactions is more reminiscent of the 1950s system based partly on the Soviet model.
Strains in this system, despite 18 years of updating, have been highlighted by Shanghai's recent endeavours to promote personal cheques. The scheme has flopped, largely for want of an efficient payment system.
The dearth of cheques has led to grumbles from both the public and retailers. "Certainly, in an ideal world, accepting personal cheques would help the business," says Ms Rene Mang, vice president of Wal-Mart China, the US retailer which in August this year opened two stores in Shenzhen.
Jusco, the Japanese department store, which opened for business in Guangdong in July this year, would also like to see cheques used by individuals. "It's important to Jusco to accept cheques from customers," says a company spokesman. "If we accept cheques, it means we can make shopping more convenient for our customers."
But sceptics in the banking world reckon shopkeepers are in for a long wait. Indeed, many technology specialists believe their best bet will be to see other, more advanced, cash substitutes flashed at the tills ? point-of-sale trans-actions, debit and credit cards, and even smart cards.
Slow cheque clearance
There are three major obstacles hampering the use of cheques in China: the lack of personal cheques, geographic boundaries ? generally, cheques can only be used within a province or city ? and authorisation checks.
The length of time taken to authorise and clear cheques can stretch to one or two weeks, and Shanghai shops involved in the pilot test ? fearful of their bottom lines ? only delivered the goods once the funds were settled. Their wariness in turn discouraged shoppers, who objected to paying for goods they then had to leave in the store for a couple of weeks.
"If cheques were popular it would require much checking, and most of the commercial banks don't provide these services," says Wal-Mart's Mang.
"Certainly there's a need from the general public to be able to issue cheques, but it would take a long time for the government to actually get this in progress," says Mr Raymond Ho, general manager for greater China for Sequent Computers, and a specialist in Chinese banking and finance technology.
Ho says the first issue to be addressed is the government policy of restricting cheques to corporate use. The Chinese term for cheque, dui gong, literally translates as 'to company', and current accounts refer to corporate accounts.
"There's the question of regulation, as well as technology," says Mr Julian Gordon, Asia programme manager with Hewlett Packard's financial business unit. "Will the central bank, the People's Bank of China, allow personal cheques?"
He is not alone in questioning the willingness of China's central bank to facilitate personal cheques. Many believe that developing countries such as China may be better served by leap-frogging cheques in favour of smart cards.
Going for smart cards
"The trend is to go for smart cards et al," says Ho. "Rather than implement the personal cheque, they will have plastic money."
Jusco says one-tenth of its Chinese customers use credit cards, while Mang says that today around 98 per cent of Wal-Mart's customers pay with cash; the balance use credit cards or debit cards. "Right now in Shenzhen most of the people tend to pay cash, and credit cards are not so popular," she says. "When you look back three or four years almost no, body paid by credit or debit card, but now some people, if they want to be more modern, will tend to get a credit card and make payments that way."
Cheques also suffer from a foreshortened sell-by date. Wal-Mart will usually only accept cheques issued in Shenzhen, where its stores are located, as cheques are only valid for five days. If a customer brings a cheque from Beijing, the Shenzhen-based store would be unlikely to get the cash within that period; and so it refuses them. Out-of-town shoppers can get round this by using bankers' drafts, where the funds have already been cleared.
The bugbear of the cheque system is the lack of infrastructure. The current system is laborious, as Oscar Lo, manager of hub development with Hongkong Bank, explains: "All cheques are presented to the central bank which acts as a clearing house. These are then sorted into different batches, then each bank physically collects the cheques and keys them in. This is done daily."
Foreign bank impetus
Lo sees an impetus for change in the awarding of licences to foreign banks to conduct local currency business ? a move which is expected very soon. The current system, he says, is tedious for local banks and uses up a lot of resources. There is also more room for errors in sorting cheques and inputting data.
Once yuan business is opened to foreign banks and they have a greater number of current accounts, there is likely to be more pressure to improve the situation. Currently, since they are restricted to foreign currency, the number of accounts held tends to be small.
Lo says a similar pattern has already emerged in other countries. In Indonesia, for example, the driving force came from the foreign banks which formed an association to push for automation.
The form, or scope, of that automation is still unclear, although most Hong Kong bankers ? in deference to China's sheer size ? reckon it will have to be on a regionalised basis, possibly kicking off with the Special Economic Zones (SEZs). Even the SEZs are likely to be split into different clearing areas, as they are too large for existing automation to cope with.
The new systems will be expensive to design, develop and test and foreign bankers suggest they may be left to foot a substantial part of the bill. "If it was a country-wide system, it would be very expensive, " says Sequent's Ho. "But most of the banks now are trying to go from city level to provincial level. So maybe in two or three years, if they build up the infrastructure from the bottom up, the local banks would fund the clearing system."
By implementing a digital system, which would scan and sort cheques automatically, the People's Bank of China could tap into the existing embryonic technology and introduce a clearing system which would surmount the problem of intracity cheques, and some of Ho's competitors believe this is the way China should proceed.
World Bank scheme
However, it does not look as if this is what China will end up with. To date, its efforts hinge largely on the Chinese National Automated Payment System (CNAPS), the inter-bank system of clearance, settlement and payments, sponsored by the World Bank.
According to Mr Li Ye, general director for the department of payment and science and technology at the People's Bank of China, the CNAPS project will include the construction of a Chinese national financial network and the application systems operating on that network.
The People's Bank is looking to implement CNAPS during the current five-year plan. Initially, it will focus on the launch and development of the system in order to improve payment services now offered by the commercial banks.
According to the World Bank, the system will begin by offering wholesale fund transfer services, supplemented by retail services at a later date. The World Bank already sees signs of improvement. For example, cheques are now cleared at the nearest town or city branch of PBOC's system of over 2,400 clearing houses, and automated cheque processing has already been introduced in a number of local clearing houses.
According to Beijing-based World Bank economist Edgardo Barandiaran, the People's Bank opted to establish a national electronic payment system, supported by a common carrier communication network serving banks and financial institutions across the country. Having commissioned design of the system to a consultancy, it is now poised to launch.
The initial range of services will include:
* local paper-based clearing and settlement services, based on the continued expansion and improvement of local clearing houses. Settlements will remain on a net basis through the books of the central bank
* bulk clearing and settlement services
* high value, time-critical clearing and settlement services
* book-entry security services
* universal authorisation services, to support the emerging use of debit cards, . the future use of credit cards and ATM transactions. These will not amount to a payment service as the clearance and' settlement entries will be processed through the bulk electronic payment systems, but they will provide greater certainty in the acceptance of these transactions. The system will be owned and operated by the People's Bank and other participating banks, and will be funded through user fees.
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