The facts: Shenzhen in mid-October gave CNY 10 million of China’s new digital currency (DCEP) to 50,000 citizens through a citywide lottery, making it the fourth Chinese city to trial the virtual currency. The rollout is the largest to date and came amid celebrations marking the 40th anniversary of the Shenzhen Special Economic Zone (SEZ) on 12 October. President Xi Jinping arrived in Guangdong province that day for a 3-day tour. He attended a ceremony in Shenzhen celebrating the establishment of the city as Special Economic Zone, a move spearheaded by his father, Xi Zhongxun, then Party Secretary of Guangdong Province. Xi praised Shenzhen's development and stressed the need to drive reform and opening up, innovation and development. His visit came shortly after the release of a five-year development plan for Shenzhen that includes data trading, wider market access and digital currency, bolstering the city’s position next to Hong Kong and as China’s equivalent of Silicon Valley.
What to watch: “Indigenous innovation” and “self-sufficiency” have been prominent terms on China’s political agenda, especially under Xi. His renewed emphasis of both ideas while in Shenzhen and the massive distribution of DCEP to the city’s citizens couldn’t be more symbolic of its status even as neighboring Hong Kong sets about redefining its financial and economic role. But the actual impact of the new reform plans and the virtual currency could prove slight. The plans as yet set few concrete goals and it could yet prove tough to establish a new digital currency – especially as Wechatpay and Alipay already dominate the markets for digital payments that they created in the last few years.
MERICS analysis: With the 14th five-year plan in the last drafting stages and ever more issues causing tensions in external relations, Xi's ambitions for Shenzhen show the urgency of China’s quest for technological innovation. The issue will likely receive even more attention than before. While Xi’s speech was short on concrete details, driving indigenous innovation, technological self-reliance, as well as continuation of a state-driven and controlled development of markets are clearly becoming a top priority for China's leadership. Announcing continued opening and development of financial markets and technology, including digital currency, is also aimed at attracting talent and shifting investments from Hong Kong, eventually integrating the two systems further into one country.
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This short analysis is part of the October 22, 2020 issue of MERICS China Briefing.