China heightens CBDC adoption, accelerates AI growth

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The Shanghai arm of the People’s Bank of China (PBoC) has expressed a renewed commitment to improve the adoption rate of its central bank digital currency (CBDC), the digital yuan, in the region as part of its agenda for 2025.

In its press release, the central bank stated that it is keen to extend the digital yuan usage beyond local commerce with an eye on cross-border and corporate transactions. The PBoC Shanghai headquarters unveiled the plans at a high-level conference involving officials and relevant stakeholders in the regional financial ecosystem.

The latest direction mirrors the resolution of the central government expressed at the 20th National Congress of the Communist Party of China (CCP) in 2024. Set to go into full effect in 2025, the PBoC is preparing for the uphill task ahead since adoption levels for the digital yuan are in the doldrums.

It also confirmed plans to adopt an “aggressive” approach to jolt adoption metrics in the coming months. Central to the PBoC’s strategy is to experiment with new use cases for the digital yuan revolving around cross-border transactions in the Bay Area.

The statement disclosed an ambitious plan to tailor digital yuan services to foreigners visiting Shanghai, given its impressive tourist metrics compared to the rest of China. To achieve this, the bank unveiled the plan for three CBDC-based service centers at Hongqiao and Pudong international airports.

Apart from its CBDC push, the statement hinted at using blockchain technology to address cross-border transaction challenges. Since China turned its back on digital assets, national interest in Web3 has reached an all-time high, with government agencies and enterprises exploring its utilities in several industries.

“We will steadily promote the development and application of digital RMB,” read the resolution. “We will use blockchain technology to achieve one-stop online processing of cross-border electronic tax payment business.”

The PBoC Shanghai added that it would employ a “moderately loose” monetary policy while adopting a strict interpretation of the CCP’s directives.

Moving forward

Since going public, the digital yuan has hit several milestones, racking up over 300 million users and integrating a slew of use cases. Several international banks have given the nod to the CBDC, with HSBC China (NASDAQ: HSBC) and Standard Chartered supporting digital yuan transactions for customers.

Authorities have unveiled applications in transport, retail, hospitality, and securities as the central bank continues to tinker with offline payment and programmability functionalities. The central bank’s streak of regional and global partnerships accentuates its milestones, setting the pace for other banking regulators.

Harnessing AI

Still in China, the national government has set its sights on artificial intelligence (AI) dominance, rolling out a 60 billion yuan ($8.21 billion) investment fund to trigger ecosystem growth amid a global arms race.

The fund stems from a high-level partnership between the Shanghai Guozhitou Equity Investment Management Co. and the National Integrated Circuit Industry Investment Fund. Unlike previous offerings involving capital injections to early-stage companies, the scope of this fund would be limited.

The $8 billion fund is expected to cover investment management, private equity, and asset management, but the exact details remain unclear. Representatives from both parties reveal that a chunk of the funds will be deployed for infrastructural development of the local AI ecosystem in China.

Experts are tipping a capital injection to establish new data centers and chip manufacturing plants to power the growing ecosystem. Another portion will be deployed for research and development to improve the capabilities of homegrown large language models (LLMs) as they compete with Western offerings.

“The development of AI is fast in China, for example, AI-empowered large language models,” said Lui Gang, chief economist at the Chinese Institute of New Generation AI Development. “Aided by government spending, private capital is flowing to the new sector. Increased capital inflow is anticipated to further enhance the sector in 2025.”

China’s AI and emerging technologies ecosystem has grown rapidly since 2023, accentuated by a streak of consumer offerings by local tech giants rivaling OpenAI, Google (NASDAQ: GOOGL), and Meta (NASDAQ: META). While growth metrics are nothing short of impressive, there are fears that the initial surge could die down in the face of a nationwide chip shortage.

The United States and China have been embroiled in a trade war, with the Western superpower imposing a ban on exporting advanced semiconductors to its Asian counterpart. Citing national security as the key reason, the White House has stiffened its resolve to maintain the trade embargo on high-level chips.

Kicking against the export ban

Chinese authorities have slammed the U.S. for its chip export policy, accusing the White House of “overstretching” the idea of national security.

“AI is humanity’s common asset, and should not become a game for the rich countries and the wealthy or be used to generate another development divide,” said Guo Jiakun, a Foreign Ministry spokesperson.

China has fired a return salvo at the U.S., imposing strict regulations on the export of gallium and germanium, key elements in the manufacture of semiconductors. The country has also invested hefty sums in chip-making plants across China in a frantic effort to circumnavigate the U.S.-led trade embargo.

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