Shenzhen, is known for its manufacturing community and manufacturing resources, and is taking the lead in testing China's digital yuan.
Last week, the city issued 50,000 randomly selected residents 10 million yuan worth of digital currency. The government distributed the money via mobile “red envelopes”, a tool that digitized the custom of giving away money in red packages and made it popular for the first time by WeChat's e-wallet.
The digital yuan is not to be confused as a form of cryptocurrency. Rather, it is issued and administered by the central bank. It serves as the legal, digital version of China's physical currency and gives Beijing a better overview of the currency in circulation. It's designed to complement, not replace, third-party payment applications like WeChat Pay and Alipay in a country where cash is dying out.
For example, in the future, the central government can give subsidies to local offices by sending digital yuan to address issues such as corruption.
Shenzhen is one of four Chinese cities that have started internal testing of the digital yuan. This was announced by the government in August without going into the details. The recent distribution to consumers is seen as the country's first major public test of the centrally issued virtual currency.
Almost 2 million people in Shenzhen have signed up for the lottery, according to a post from the local government. The winners were able to redeem the 200 yuan envelope in the official digital yuan app and spend the virtual money in over 3,000 retail stores across the city.
As a next step, Shenzhen will introduce a (vaguely defined) “fintech innovation platform” through its official digital currency institute, according to a new central government document detailing the city's five-year development efforts, including attracting further foreign investment in cutting-edge technologies. The city will also play a key role in promoting the research and development, application and international cooperation of the digital yuan.
In April, the city's digital currency vehicle kicked off a wave of recruiting for technical positions such as mobile app architects and Android developers.
Established in 1980 as China's first special economic zone, Shenzhen is now home to technology giants like Tencent, Huawei and DJI, as well as innovation centers like HAX and Trouble Maker. President Xi Jinping will visit the city this week to commemorate the city's 40th anniversary.
While the central bank provides logic and infrastructure for the digital yuan, commercial banks and private companies have plenty of room for innovation at the application level. Both the hailstorm platform Didi and the fintech arm of JD recently unveiled steps to help accelerate the real-world implementation of the digital yuan.