Ant Financial quietly conducted a digital yuan test in Shanghai via AliPay

Alibaba's payment affiliate Ant Financial has quietly conducted a small-scale test of digital yuan via its mobile payment app AliPay.

According to Chinese reports from Jiemian and Yicai, Ant Financial rolled out the test last week in two bubble tea stores at a shopping mall next to its Shanghai headquarters in the Lujiazui financial district. This is the first known instance where China's digital yuan – also known as DC/EP – was tested inside a mobile app that's developed by a non-state-owned entity (as noted previously, the question of competition with private entities remains an open question).

Physical signage was placed inside the stores which showed eligible users could pay for drinks using digital yuan via AliPay's mobile app with a 2% discount.

Shop employees told the media outlets that the test went on for just three days but only Ant Financial employees who had obtained clearance to activate the feature could participate. According to the reports, not many users had taken part in during the three-day run.

Ant Financial said it has been moving ahead with digital yuan test based on the schedule directed by the People's Bank of China (PBoC). "So far we are still at an early stage of the test and there's no further information that can be disclosed," the company said in a statement.

During a keynote speech in late October 2020, Mu Changchun, head of PBoC’s Digital Currency Research Institute, said that DC/EP is not to compete with AliPay or WeChat Pay. He explained that DC/EP, cash and bank savings, they are all just the content of a payment while AliPay, WeChat Pay or any bank's mobile wallets are the payment gateway infrastructure. 

As such, a long-term competition could be on the network effects of DC/EP wallets between those made by state-owned commercial banks and those existing ones like AliPay or WeChat Pay.

China has thus far launched three city-wide central bank digital currency tests, which involved giving away digital yuan to residents via a lottery.

In each test, lottery-winners received a text message with a link to download a standalone digital yuan wallet. After downloading the app, users had to activate their digital yuan wallets with one of the supported financial institutions — all state-owned commercial banks. 

For the bubble tea store test, however, users could preload digital yuan from their connected bank accounts inside their AliPay mobile app, based on the reports.

The payments would be done the same way as any conventional AliPay transactions via scanning QR codes. But for the eligible test users, they could opt for paying with the digital yuan in addition to bank cards.

But it appears the news reports about the test did not draw much wider attention in China at a time when Alibaba is under intense scrutiny by the state.

Since Ant Financial's massive duo-listings in mainland China and Hong Kong were halted by regulators in November just days before the bell ring, Alibaba has tempered its external communications during the past few months. 

The absence of Alibaba founder Jack Ma, whose remarks in an event in October reportedly angered Chinese President Xi Jinping, has recently stirred questions among journalists, analysts and investors as to whether Ma is missing.

Meanwhile, a Shanghai hospital conducted a digital yuan test with the support of a card-based hardware wallet last week. The test drew much wider attention, with media coverage from state-owned outlets.