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Chinese regime’s third-party payments infiltrate US, may become vanguard

On Jan. 5, the Central Bank of China announced the full launch of the digital renminbi pilot. On Jan. 12, U.S. Senator Marco Rubio wrote a letter to President Joe Biden expressing strong concerns about the digital Yuan launched by the Chinese Communist Party (CCP) and calling for the protection of U.S. Olympic athletes from surveillance and manipulation in Beijing.

He wrote that Beijing is pressuring American vendors such as Visa, Nike, and McDonald’s to accept digital Yuan as payment ahead of the Winter Olympics. In addition, the CCP rolled out the currency more broadly to visitors at the Games.

He added that the threat this poses to Americans, coerced into downloading harmful, foreign software to process the currency and engaging in financial transactions in China, is enormous.

In taking advantage of the Winter Olympics as a window for publicity, the Chinese regime is working hard in 11 pilot areas, including Shenzhen, Suzhou, Xi’an, Chengdu, Shanghai, Hainan, Changsha, Qingdao, Dalian, and the Winter Olympics scene (Beijing, Zhangjiakou) to promote the digital Yuan.

However, an easily overlooked fact is that the Chinese regime’s currency, “dark war,” may only be one “purse” away from Americans. This “wallet” is a third-party payment from mainland China.

In the United States, many online retailers use Chinese third-party payments such as Alipay. More markets accept brick-and-mortar small and medium-sized merchants, and mainstream American merchants, such as Walgreens and Target, accept Alipay as payment.

According to a Bloomberg report on May 8, 2017, Ant Group, the parent company of Alipay, has secured an agreement with First Data, a payment processing business based in the United States.

Customers can now use Alipay at First Data’s 4 million merchant locations in the United States.

The Ant Group, part of Chinese internet giant Alibaba, planned the largest IPO (initial public offering) globally. However, the CCP stopped it two days before the listing. As reported by Reuters, in January 2017, Ant Group also launched the acquisition of the world’s second-largest remittance institution, MoneyGram, in the United States. Still, the U.S. government rejected it the following year.

However, Ant Group has not stopped expanding overseas. In February 2019, the company officially acquired WorldFirst, a British cross-border payment company; the two parties did not disclose the specific amount.

According to a previous report by the Financial Times, the purchase price may be around $700 million. On the eve of the acquisition, WorldFirst abruptly terminated all operations at the U.S. site and renamed its U.S. subsidiary, Worldfirst US, to Omega (website), which would operate independently.

The U.S. government has recognized the power of third-party payments. For example, the Internal Revenue Service (IRS) requires third-party payment application platforms such as PayPal, Venmo, Zelle, and Google Pay to report payments for goods and services of $600 or more to the IRS starting in 2022.

According to the U.S. Internal Revenue Service, the new restrictions apply to all third-party payments, including overseas payment systems. However, Alipay and WeChat Pay may remain hidden if the third-party payment platform pays the recipient through an Electronic Payment Facilitator (EPF). The EPF, not the third-party platform, is responsible for reporting the transaction. According to the official websites of Alipay and WeChat Pay, both use U.S. partner institutions to settle U.S. dollar payments with U.S. merchants.

Alipay and WeChat Pay are both third-party payments. This term’s origin is in the U.S., but it has developed rapidly in mainland China. It refers to a transaction method where a third-party provider conducts payment and receipt operations between buyers and sellers.

The Nikkei Asia reported that the central bank fully launched the E-CNY pilot to connect Wechat and Alipay to the digital RMB.

Jack Ma and Alibaba pioneered China’s third-party payment industry, making Alipay expand from the original Taobao third-party secured transaction tool to more fields and ambitions, and even penetrated all aspects of Chinese society.

According to the 2020 prospectus of Ali’s Ant Group, the total domestic payment transaction size of Alipay is as high as $17.1 trillion, equivalent to more than double the GDP of China in 2020. In 2016, China’s mobile payment industry was 90 times larger than the U.S.

The third-party payment platform with the most significant transaction volume globally is Alipay. Since 2017, China has strengthened its control over the third-party payment industry, mainly Alipay and WeChat Pay.

On Jan. 13, 2017, the Central Bank of the CCP issued the “Notice on the Implementation of the Centralized Depository of Payment Institutions’ Client Reserve Funds” (Yinbanfa [2017] No. 10). It gradually required payment institutions to deposit more than one trillion yuan on a scale of customer reserves handed over to Alipay and WeChat, which initially controlled the vast majority of this enormous sum of money.

On Aug. 4, 2017, the central bank issued the “Notice on Migrating the Online Payment Business of Non-bank Payment Institutions from the Direct Connection Mode to the Network Connection Platform” (Yin Payment [2017] No. 209), requiring third-party payment institutions to cut off the connection with the bank. The direct link with the banking system was one of the most critical competitive advantages developed by Alipay and WeChat.

In 2018, Alipay and WeChat Pay were included in the central bank’s UnionPay and Netlink clearing platforms. This incorporation means that the core business of third-party payment is 100% controlled by the Central Bank of China.

However, the Chinese want more than that.

In November 2020, after the authorities halted the listing of Ant Group (Alipay), they interviewed Ant several times, demanding that they “break the information monopoly” and legally operate a personal credit reporting business, which means that Alipay should hand over the user data into their hands. During the period, Ali was fined a record $2.87 billion by the authorities in April 2021.

In November 2021, the Central Bank announced that Ant Group and Zhejiang Tourism Investment Group, controlled by the Zhejiang Provincial Government, jointly established Qiantang Credit Reporting Co. with a 35% stake, meaning that Ant (Alipay) has finally handed over their most valuable asset to the Chinese. It has big data.

Huawei, which the U.S. government rejected, and ByteDance, the parent company of TikTok, which was almost banned, have all obtained the Chinese third-party payment license, under which Douyin Payment was launched in January 2021.

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