China: Payment Trends and Popular Payment Methods

China: Payment Trends and Popular Payment Methods

China remains the world’s major growth engine. Explosive annual GDP growth averaging 9.09% from 1989 until 2022 has transformed the country into an economic superpower.

And despite facing ‘complex environments’ and headwinds such as Covid-19 and various geopolitical events, China’s economy is likely to regain strong momentum. Researchers at the Growth Lab at Harvard University predict China will still be among the fastest-growing economies in 2030.

Consumer spending is a significant contributor to China’s growth. As household incomes have increased, more consumers have wanted to purchase products from outside China, making this market a magnet for consumer brands and merchants from around the world. 

Meanwhile, Chinese consumers have rapidly embraced new digital payment methods that provide convenience, security and trust when shopping online or in-store, accelerating the shift away from cash. 

This article highlights the key payment trends and payment methods in China.

1. China – Overview

China is roughly the same size as the United States, but with over 1.4 billion people, its population is more than four times larger and accounts for more than one-sixth of the world’s inhabitants.

Today, most of the population lives in over 600 cities, with around 27.8 million people estimated to be living in the urban area of Shanghai, the largest city in China.

China has the same amount of 1 million+ population cities as both North America and the EU combined.

The urbanization rate has increased steadily in China over the last decades. In 2021, about 914 million people lived in urban regions in China and 598 million in rural

Following decades of growth, China’s population appears to have peaked and now looks to declineThe fast-ageing population trend is set to have a significant impact. By 2040, an estimated 402 million people (28% of the total population) will be over the age of 60. Predictions suggest the nation’s working-age population could drop by two-thirds or more by the century’s end.

The fast-ageing population trend is set to have a significant impact. By 2040, an estimated 402 million people (28% of the total population) will be over the age of 60. Predictions suggest the nation’s working-age population could drop by two-thirds or more by the century’s end.

2. Consumer & B2B spending

China is the world’s largest consumer economy, measured by purchasing power parity (PPP). It is also the world’s largest ecommerce market by far, with sales of US$1.3 trillion in 2020 projected to soar to almost US$2 trillion by 2025. 

In the first three quarters of 2021, consumer spending accounted for 64.8% of the nation’s GDP

Consumer spending is continuing to accelerate fast.

By 2030, China’s private consumption is set to more than double in 10 years to reach $12.7 trillion, according to Morgan Stanley. That’s about the same amount currently spent by US consumers.

The factors driving this expected growth include government policies supporting the Chinese economy, further development of urban areas, technological changes and demographic shifts. 

But above all, increases in household income will free up much more spending on consumer goods. China’s per capita disposable income rose 9.1% in 2021 from the previous year. Disposable income per capita is predicted to more than double by 2030 to reach US$12,000.

How consumers spend their money is changing, too. Post-pandemic spending trends point to an emphasis on services rather than goods, with a rise in consumption related to wellness, services and technology.

Cross-border e-commerce

As Chinese consumers’ appetite for imported goods increases, the online shopping user base keeps growing. 

China’s cross-border e-commerce grew 18.6% to reach 1.92 trillion yuan (US$290 billion) in 2021.

The volume of China’s RMB cross-border payments soared in 2021, with over 3.34 million transactions handled, surging 51.55% year on year. 

Over 235 million Chinese customers already purchase products through cross-border e-commerce channels, and this number will go on increasing each year.

Increasing numbers of small- and medium-sized international brands have accelerated their online sales via leading Chinese cross-border marketplaces such as Tmall Global and JD.com International. This allows overseas merchants to sell products directly to Chinese customers and rapidly grab market share.

The cross-border shopping behaviour of Chinese consumers is evolving fast, bringing about a growing demand for personalised products and consumption upgrading.

China is expected to further open up its cross-border payments market and foster cross-border use of the RMB. According to China’s central bank, the cross-border use of RMB reached 9.7 trillion yuan (US$1.45 trillion) in the first quarter of 2022, up 8% year on year.

Chinese authorities are encouraging foreign importers (B2B trade companies) to make payments in RMB and recipients of China’s Belt and Road loans to borrow in the currency.

Social commerce

Social commerce has seen rapid growth in China in recent years. The sector’s market value was $363 billion in 2021, up 36% year on year. That figure is ten times the total social commerce sales in the United States. Forecasts suggest that social commerce will grow at 29% annually until 2028.

Gen Z consumers (loosely, people born from 1995 to 2010) are the driving force of this growth, with video and livestreaming sites popular sources for young bargain hunters thanks to their ease and convenience. This 270-million-strong section of the population is expected to contribute significantly to a fourfold rise in social media spending by 2035.

Social commerce isn’t limited to low-priced purchases. Recently a slew of luxury international fashion brands has appeared on Tmall’s Luxury Pavillion and JD.com.

3. Key payment trends

China is the biggest market for digital payments and shows no signs of slowing down.

Ten years ago, 99% of people in China used cash. Today, most Chinese consumers have transitioned to mobile money apps like Alipay and WeChat, with bank cards and credit cards also used.

China’s transformation into a cashless society, its massive ecommerce market, and high mobile and online payment penetration ­– more than half a billion Chinese consumers will pay with their phones at a point-of-sale in 2022 – are expected to propel growth in the payments market at a compound annual growth rate (CAGR) of 8.8% from 2022-2027.

Bank accounts and cards

Yet despite tech disruption, China’s entrenched major banks continue to dominate the financial sector, with bank accounts offering a convenient payout option for transactions. Meanwhile, debit and credit cards continue to be used widely. The dominant player, UnionPay – the world’s biggest card payment organisation – has the largest share of global card expenditure, with 45%, largely driven by spending in China. In 2020, UnionPay International reported online transaction volume grew by nearly 15% year on year.

Accelerating Mobile Payments

Unlike Western markets, China virtually skipped the credit card payment era and jumped directly from a cash society into the digital and mobile payment era.

The shift was accelerated by advanced technologies and a high mobile penetration rate.

According to the GSMA, at the end of 2020, 1.22 billion people subscribed to mobile services in China, equivalent to 83% of the region’s population.

Chinese tech giants Alibaba and Tencent pioneered digital merchant payments by introducing AliPay and WeChat Pay. These leading non-bank apps have become so popular that they are now used by over 90% of people in China’s main cities.

In November 2022, Thunes launched instant payouts to 1.3 billion users on Tencent’s WeChat/Weixin service. The collaboration makes Thunes the first payment infrastructure network to connect with Tencent and adds significantly to its existing payouts capability to Alipay wallets.

Digital currency & crypto

The Chinese government’s biggest incursion into the payments market is yet to come. China is currently testing a digital currency intended to internationalise the yuan and lead to faster and more efficient transactions. This move could come at the expense of the reigning payments operators, Alipay and WeChat.

China’s digital currency, or e-CNY, was the most issued, and actively transacted token during a recent pilot program.

Since September 2021, China has cracked down on other cryptocurrencies such as bitcoin and instead seeks to provide its own alternative. 

In early 2022, China announced plans to strengthen its cross-border yuan payments system and explore setting up infrastructure standards for a digital fiat currency as part of a five-year plan for financial standardisation.

Blockchain technology and Web 3.0

Blockchain technology is a powerful tool that can help ease friction in cross-border payments. China is already exploring its use for verifying data authenticity and preventing and controlling credit risks for enterprises.

4. Challenges

We see three key challenges for making payments to China for businesses around the world.

1. China does not adopt the Western Automated Clearing Houses (ACH) standard for direct deposit payments. 

Such payments can only be made via the China National Advanced Payment System (CNAPS) rails, funnelled through one of the few licensed Payment Service Providers (PSPs) in China.

2. Lack of Chinese language may lead to communication error.

Global companies must provide payment instruction files written in simplified Chinese to work with China-based PSPs.

3. China has stringent anti-money laundering laws, which give it a Basel AML Index rating of 6.70 out of 8.49.

As a result of these laws, however, the process of sending and receiving money in China is complicated. To send money out of China, you need to engage a Chinese bank. The bank will require extensive documentation to verify why you are sending funds outside China. 

You can only receive up to CNY 10,000 in China. Anything over this limit will be closely monitored. 

The State Administration of Foreign Exchange also limits the number of overseas ATM withdrawals to CNY 100,000 per person per year. Should you make withdrawals exceeding this annual cap, your overseas withdrawals could be suspended for the rest of the year.

5. Thunes’ capabilities in China

Strong local preferences for fast digital payments mean that any businesses looking to enter the Chinese market should integrate this into their go-to-market strategy.

Since entering the market in 2019, Thunes has gone from strength to strength in China, one of the most important high-growth markets in the company’s global expansion plan.

Leveraging Thunes’ interoperable infrastructure across various payment platforms can help millions of consumers and businesses in China with cross-border payment capabilities, ranging from collection (pay-in) to payout and virtual accounts.

Main benefits:

  • Wide coverage, including bank accounts, e-wallets and cash pick-up points
  • Competitive pricing
  • Low failure rate, especially in the high-growth and emerging markets

In China, Thunes partners with:

  • Traditional banks
  • PSPs
  • Digital money operators
  • The creator economy
  • B2B/B2C trading platforms 
  • Leading marketplaces

Alipay and WeChat Pay – known as Weixin Pay in China – are the largest mobile money apps in China, accounting for over 90% of China’s mobile payments.

Following a partnership with Alipay+, merchants in Europe that work with Thunes can serve online consumers from Asian markets and accept Alipay mobile wallet payments during checkout. At the same time, consumers can use their mobile wallets to pay in-store purchases in Europe, using a dedicated Point-of-Sale mobile application that supports QR-code payments. Thunes has also launched payouts to Weixin’s one billion+ users, opening up a myriad of international payments use cases for Chinese expats and migrant workers. This move also gives businesses fast and easy access to the Chinese market.

Thunes also partners with Alipay in Southeast Asia and Africa, enabling payout to Alipay-owned e-wallets (Alipay+) in these regions.

Virtual accounts

Thunes’ virtual account service enables cross-border merchants (sellers) to collect payment from overseas without needing to establish a local entity.

  • Since creating a virtual account only needs a few seconds,  it simplifies the approval process and reduces the complexity and time required to create an overseas physical bank account. 
  • Besides, operating and maintenance costs of a virtual account are significantly lower than physical bank accounts.
  • With virtual accounts, merchants can collect and hold local currency while withdrawing in their preferred currency. In the meantime the customer experience is optimised as they can pay in the local currency. 
  • Virtual accounts provide transparent FX costs in advance, so merchants will have more control over FX transactions cost and risk when handling cross-border transactions.

Our team in China

A dedicated and experienced team on the ground in China provides commercial and technical support to local customers. In 2022, Thunes accelerated the pace of expansion, nearly doubling the company’s headcount in Greater China. 

Power your business in China

Get in touch with us to discover the potential payments and growth opportunities for your business in China today.