Chinese Fintech Apps and the rise of a global surveillance state

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<strong>In China, there has been an explosion of shady Fintech apps, some of which have come under heavy scrutiny for indulging in unlawful business practices, and establishing an underground banking system.</strong></p>
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A report by India Today points out that these clandestine apps first entice the user by offering instant loans without any lengthy paperwork or collateral. The scam begins fairly innocuously, with the app requesting personal details of the loan applicant, in order to deposit the money sanctioned as loan. But then the application surreptitiously gains access to the applicant’s contact database and gallery of the phone they are installed in. Armed with this private information, the cycle of harassment begins.</p>
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Exorbitant interest rates are levied and threatening phone calls start as soon as the deadline is passed. Multiple fake legal notices are sent to the relatives and family members. Sometimes, amount exceeding the loan that is sanctioned is deposited without the creditor’s consent to further extort money. A woman in Tamil Nadu committed suicide because she was harassed with requests for a naked video call as “collateral” in case she failed to pay her loan, as reported by an Indian media report.</p>
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A probe into the matter by Enforcement Directorate showed up that loan application servers of these apps were based in China. To curb these incidents, Reserve Bank of India has formed a committee to look into the unregulated lending sector. </p>
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Some of the reported apps operating in the unregulated lending sector are Mint Cash, Happy Cash, Cash Bus, Repay One and Monkey Box among others.</p>
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The BBC has reported that following India’s permanent ban on many Chinese apps, an executive order was passed by the Trump administration to block WeChat Pay and Alipay apps, which dominate the Fintech market.</p>
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Google and Apple have also been enforcing their policy of removing apps that offer personal loans at excessive interest rates, restricting these apps from recovering even legitimate loans. </p>
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The Foreign Affairs Magazine is reporting that there are concerns regarding Beijing using its growing influence in the Financial Technology sector to gain access to sensitive data and consolidate as a humungous surveillance state.</p>
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Tracing the rise of Fintech, it points to mobile payment apps in China that began as fun and easy ways to send “red envelope” holiday gifts to family and friends on the Lunar New Year, but they have quickly blossomed into an immense industry. Millions of Chinese consumers use digital payment technologies for everyday transactions. China’s burgeoning middle class has leapfrogged credit cards and moved straight to digital payments, whose volume now exceeds $42 trillion annually in China—nearly 150 times the volume of US transactions on apps such as PayPal and Venmo.</p>
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Mobile payment apps have generated enormous data, which is the keystone to making China as a surveillance state.</p>
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The Foreign Affairs piece points out that the so-called data exhaust from billions of digital transactions supplements existing data from facial recognition, search histories, and social network connections, furnishing the CPC with GPS time and location stamps, transaction histories, travel logs, bank account details, and more. Together, this information allows Chinese authorities to closely monitor and control specific individuals and communities by reducing or cancelling access to bank accounts, freezing travel routes, and denying entry to specific locations. Ominously, financial authorities in Hong Kong have recently begun asking banks to report transactions to help authorities identify pro-democracy activists.</p>
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Officials outside China are understandably concerned about how Chinese authorities might harness data generated by users in their own countries. Alipay boasts users in more than 110 countries. Indian Member of Parliament Narendra Jadhav warned in 2018 that if Chinese fintech companies gained access to the financial data of millions of Indians and of Indian companies, it would expose India to “serious geopolitical risk.” Similar fears motivated Trump’s January executive order banning Alipay, WeChat Pay, and other Chinese software applications.</p>
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But China’s dominance in fintech also promises to boost the CPC’s expansionist ambitions in another way, hardwiring other countries to China’s economy. Chinese fintech firms function like a geo-economic Trojan horse. First, Alipay and WeChat Pay—companies that make up 95 percent of China’s mobile payments market—integrate themselves into daily economic life in another country. Then, piggybacking off this financial infrastructure, they and other Chinese firms acquire digital banking licenses and rapidly expand into other sectors, including digital insurance, consumer credit, remittances, and lending. These companies soon become too embedded in their host country to remove. In early December, for example, three of the four winners (picked from a pool of 21 applicants) of digital banking licences in Singapore were Chinese or heavily backed by Chinese investors. U.S. and other Western companies were nowhere to be seen, leaving China with an open playing field.</p>
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China’s bid for fintech hegemony in Asia is a step toward an even bigger goal: achieving global reserve currency dominance. Last fall, analysts at the U.S. financial services firm Morgan Stanley forecast that the yuan could surpass the Japanese yen and the British pound sterling to become the world’s third-largest reserve currency by 2030, accounting for between five and ten percent of global foreign exchange reserve assets. Beijing is challenging the sway of the U.S. dollar over Southeast Asia and parts of Africa as it prepares to launch, likely within the next year, a sovereign digital yuan, which would make transactions easier and also enable China to better track how its currency is used.</p>
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China’s attempt at creating a Fintech supremacy doesn’t end here. The South China Morning Post reports that China aims to release a sovereign digital Yuan that will enable it to track how its currency is being used, furthering its status as an autocratic surveillance state. China will further try to push it as mode of payment for conducting larger transactions such as financing exports and interest payment. This is aimed at undermining the dollar dominated exchange platforms such as SWIFT, which is key to maintaining US hegemony over the global trade.</p>
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