Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / How China Is Reshaping Global Fintech via Cross-Border Payments
Transcript
- Lucas: So last week, JD.com reported a three-point-nine percent bump over five days, while Pinduoduo slipped a bit. But the headline that caught my eye wasn't about e-commerce stocks — it was about how China's fintech players are quietly building a cross-border payment network that could rival Visa and Mastercard in emerging markets. Luna: You mean Alipay and WeChat Pay? They've been in Southeast Asia for years. What's new? Lucas: The scale, actually. The People's Bank of China just released data showing that yuan-denominated cross-border payments hit a record high in Q2 — roughly 48 percent of China's total trade settlements now go through in yuan, up from 38 percent a year ago. And a big chunk of that is moving through Alipay's merchant network in Thailand, Indonesia, and now parts of Africa. Luna: Forty-eight percent? That's a serious jump. I remember when it was barely 20 percent back in 2020. Lucas: Exactly. And the yuan itself has been remarkably stable — it's at 6.78 per dollar as of this week, basically flat over the last month. That stability matters because it reduces the currency risk for merchants accepting payments in yuan. So when a tourist from Shanghai buys a durian in Bangkok using Alipay, the Thai vendor can settle directly in yuan without converting through the dollar. Luna: That cuts out the dollar entirely. Which is exactly what Beijing wants — less reliance on the SWIFT system and the U.S. financial plumbing. Lucas: Right. And it's not just tourism. Take Pinduoduo's international arm — they've been onboarding small merchants in Vietnam and the Philippines to sell directly to Chinese consumers. Those merchants get paid in yuan via WeChat Pay, and they can use that yuan to buy raw materials from Chinese suppliers. It's a closed loop. Luna: So it's B2B trade finance disguised as consumer payments. That's clever. Lucas: That's exactly what it is. And the data backs it up. China's exports of goods and services were running at an annualized rate of about three point five trillion dollars at the start of 2026, while imports were around four point three trillion. That trade deficit — about 77 billion dollars in May alone — means China is buying a lot from the rest of the world. And increasingly, those purchases are being settled in yuan. Luna: So the more China imports, the more yuan flows out, and the more those recipient countries need to hold yuan to keep the system going. It's a virtuous cycle for the currency. Lucas: Exactly. And this is where the fintech piece gets really interesting. Alipay has been rolling out what they call 'Alipay+' — a platform that connects local e-wallets in Southeast Asia so that a GrabPay user in Singapore can pay a merchant that only accepts Alipay. Behind the scenes, settlement happens in yuan. Luna: So it's an interoperability layer. And they're basically building the rails before Visa or Mastercard can even agree on a common standard for QR payments in the region. Lucas: That's the competitive advantage. Visa and Mastercard are still heavily reliant on card-present transactions and their own networks. But in many parts of Southeast Asia and Africa, the leapfrogging went straight to mobile. So Alipay is already the default. Luna: I saw a stat from the Bank for International Settlements — I think it was from their June report — that China's digital payment networks now cover over 40 countries. That's up from about 28 two years ago. Lucas: And it's not just consumer payments. The digital yuan — the central bank digital currency — is being tested for cross-border wholesale settlements. The PBOC did a pilot in April with the central banks of Thailand and the UAE, settling a 10 million dollar oil trade in digital yuan. That's small, but it's a proof of concept. Luna: So the strategy seems to be: use consumer fintech to build the user base and the merchant network, then layer on wholesale CBDC for big-ticket trade. It's a two-track approach. Lucas: Exactly. And it's happening while the U.S. is distracted by its own trade wars. The latest headlines are all about Trump's push for American-made AI chips squeezing TSMC's margins, and new tariffs on generic drugs from 2028. That creates a window for China to deepen financial ties with countries that are wary of being caught in the crossfire. Luna: But there's a counterargument. Some economists say this is more about geopolitical leverage than genuine financial inclusion. If China starts demanding yuan settlement for strategic commodities like oil and rare earths, it could weaponize the payment system just like the U.S. has with SWIFT. Lucas: That's a real risk. And we saw a hint of that last year when China briefly slowed rare earth exports to Japan during a diplomatic spat. The difference is that China is still a net importer of many raw materials, so it can't afford to alienate suppliers. But as the trade surplus narrows — and it has been narrowing — the dynamic shifts. Luna: Let's talk about the current account. The data shows a deficit of about 227 billion dollars as of Q1 2026. That's the largest in over a decade. How does that play into the fintech push? Lucas: It actually strengthens the case. A current account deficit means China is sending more money abroad than it's receiving. That creates a natural outflow of yuan. If those outflows go through China's own payment systems, they bypass the dollar and reduce the need for foreign exchange reserves. So the deficit becomes a feature, not a bug. Luna: That's a fascinating lens. So the fintech expansion isn't just about convenience — it's a macroeconomic tool to support the yuan's international role while the trade balance shifts. Lucas: Precisely. And if you look at the stock moves, JD.com has been a beneficiary — its logistics network in Southeast Asia integrates tightly with WeChat Pay. Pinduoduo, on the other hand, is more domestically focused and hasn't ridden the fintech wave as much. That three-point-nine percent bump for JD this week is partly about investor confidence in its cross-border payment strategy. Luna: So for an investor listening, what's the takeaway? Is there a play here beyond just owning Alibaba or Tencent? Lucas: I think the bigger opportunity is in the payment infrastructure companies themselves — the firms that provide the backend for Alipay and WeChat Pay, like the payment processors and tech integrators. Also, logistics companies that are building the physical network for cross-border e-commerce. JD Logistics is one, but there are smaller players in Hong Kong that are more directly tied to the yuan settlement trend. Luna: Yeah, that makes sense. The financial plumbing is where the real value is, not just the front-end apps. Lucas: And on that note — if you're finding these conversations useful, and they help you make sense of the numbers, a couple of dollars a month genuinely makes a difference. It's what keeps these shows ad-free and independent. You can find us at buy me a coffee dot com slash fexingo. No pressure, just if it's added value. Luna: Absolutely. Even small contributions add up and let us keep digging into topics like this. And it helps us stay focused on the data, not the sponsors. Lucas: Right. So back to the yuan — the fact that it's stable at 6.78 while the dollar index has been creeping up tells you that the PBOC is actively managing the exchange rate to support this fintech push. They want the yuan to be seen as a reliable settlement currency, not a volatile one. That's a deliberate policy choice. Luna: And as long as China continues to run a current account deficit and export capital through state funds and fintech networks, that stability is likely to hold. But if the deficit widens too fast, we could see pressure. Lucas: That's the tension. For now, the playbook is working. But the next test will come when the Fed eventually cuts rates and capital flows shift again. China's fintech expansion is a long game, and we're only in the early innings. Luna: Alright, Lucas. Good discussion. Let's see how this plays out over the next quarter. Lucas: Agreed. That's all for today. Thanks for listening.