China's Belt and Road Initiative celebrates its 10th anniversary this year, marking a significant milestone in China's global involvement. Expanding upon the framework established by this initiative, China has been proactively forging new paths and broadening the scale and reach of its global interconnectedness. According to data from the Ministry of Commerce of China, as of January 2023, China had successfully finalized over 200 cooperation agreements, collaborating with 151 countries and 32 international organizations. These agreements encompass a diverse array of sectors, ranging from science and technology to finance and trade, among which cross-border e-commerce has emerged as a dynamic and rapidly expanding business model and collaboration mechanism between China and countries along the Belt and Road.

China's "Digital Silk Road" has made significant strides. According to data released by the Ministry of Commerce, by the end of 2022, China had signed memorandums of understanding for cooperation under the framework of the "Digital Silk Road" with 17 countries and established bilateral cooperation mechanisms on "Silk Road e-commerce" with 23 countries. The impact of these efforts is reflected in the impressive figures reported by the General Administration of Customs. In 2022 alone, the import and export value of cross-border e-commerce in China reached an impressive 2.11 trillion yuan ($292.3 billion), representing a notable 9.8 percent year-on-year increase. Of this total, the export value accounted for 1.55 trillion yuan, a significant 11.7 percent year-on-year increase and a 1.9 percent growth compared to the figure from 2019.

The implementation of the Regional Comprehensive Economic Partnership Agreement is significant for the Belt and Road Initiative, as it is the largest and most institutionalized cooperation platform in the Asia-Pacific region. As this free trade area, which encompasses the world's most populous nations and huge growing markets, enters a new phase of comprehensive implementation, Zhejiang University International Business School and Ant Group have joined forces to introduce the innovative RCEP Regional Cross-border Payment Service Index. This pioneering index utilizes cross-border e-commerce big data to evaluate the scale and quality of cross-border payment services specifically for small- and medium-sized enterprise sellers within the RCEP region.

Despite the challenges posed by global trade tensions and the widespread impact of the COVID-19 pandemic, the cross-border financial services within the RCEP region have demonstrated remarkable resilience. The index reveals a significant upward trend since the first quarter of 2018, with a more than two-fold increase over the span of four years and an annualized growth rate of 20.96 percent. Notably, the RCEP cross-border payment service scale index has experienced a greater increase compared to the cross-border payment service quality index, expanding by 2.5 times in four years. This indicates a robust demand for cross-border payment services, while also highlighting the need for further improvements in optimizing the speed and quality of such services.

JIN DING/CHINA DAILY

Notably, the payment activity within the scale of cross-border payment services, as measured by the number of payments, surpassed the growth observed in the breadth of cross-border payments as measured by the growth of sellers and the depth of the cross-border system as measured by transaction amount. This suggests that while the number of cross-border payment transactions is increasing, the individual payment amounts are relatively smaller or experiencing slower growth compared to the number of initial payments. This trend indicates a tendency toward fragmented and smaller orders, which to some extent reflects the emergence of "micro multinational enterprises" in the Asian region.

In the context of initiatives such as the Belt and Road Initiative and the RCEP, it is crucial to enhance and streamline cross-border payment systems to enable smooth and efficient financial transactions, thereby promoting deeper regional integration. Fragmented payment systems pose obstacles to achieving seamless cross-border transactions and have detrimental effects on cross-border trade and economic cooperation.

First, fragmented payment systems lead to higher transaction costs due to varying tariffs, exchange rates and fees. This diminishes cross-border trade competitiveness. Managing different regulatory requirements across systems adds operational complexities and administrative burdens.

Second, cross-border payments involve sensitive information, requiring robust security and data privacy measures. Divergent data protection laws and privacy standards across countries pose compliance challenges. Establishing effective data protection mechanisms is crucial for user trust and advancing cross-border payment services.

Third, inadequate infrastructure and unequal access to financial services hinder financial inclusion. Some Belt and Road countries and RCEP members face deficient financial infrastructure, limiting payment system interoperability and availability. This denies affordable and efficient cross-border payment services to individuals and businesses in remote or underdeveloped areas, worsening regional and societal disparities and hindering inclusive economic growth.

The Renminbi Cross-border Interbank Payment System (CIPS) is a promising solution to tackle the complexities arising from fragmented payment systems within the Belt and Road Initiative and the RCEP. The CIPS serves as a financial infrastructure that facilitates fund clearing and settlement services for domestic and international financial institutions. As of April 2023, the CIPS system had 80 direct participants and 1,357 indirect participants, extending its reach to 110 countries and regions worldwide. Its steady growth signifies the system's potential and importance in enhancing cross-border payment efficiency and fostering greater financial connectivity.

The CIPS, although not a comprehensive solution yet, plays a significant role in addressing the challenges posed by fragmented payment systems. Additionally, the CIPS supports the internationalization of the renminbi by using it as a settlement currency, thereby promoting its usage in cross-border trade among participating countries.

Considering that small- and medium-sized enterprises are more vulnerable to exchange rate risks and are particularly sensitive to the efficiency of circulation links and capital turnover cycles, guiding them to leverage the advantages of the renminbi for cross-border transactions becomes increasingly pertinent. The effective implementation of the RCEP will provide more certain opportunities for the widespread utilization of the renminbi within the region. Encouraging financial institutions and third-party payment providers in China to expedite their presence within the RCEP region, expand the overseas renminbi service network, diversify offshore renminbi financial products, and offer a range of offshore renminbi asset preservation and value-added tools is imperative. Furthermore, leveraging platforms such as pilot free trade zones and free trade ports as openings for introducing foreign financial institutions and service providers will stimulate business innovation in areas such as offshore renminbi transactions, cross-border trade settlement, and two-way financing services.

Despite the potential impact of fragmented payment systems in cross-border e-commerce within the Belt and Road Initiative and the RCEP, it is essential to adopt a broader perspective when analyzing this situation. Rather than viewing these challenges solely as obstacles, they should be seen as opportunities for strengthening cooperation, enhancing institutional frameworks and fostering greater interregional connectivity and economic integration. The introduction of the CIPS represents a significant step toward addressing these issues and laying the groundwork for closer and more prosperous regional economic collaboration.

*The article was originally published on China Daily, July 12, 2023: https://www.chinadaily.com.cn/a/202307/12/WS64adee3ba31035260b815e04.html