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NEEDHAM, Mass. - While The People's Republic of China is the second-largest economy in the world, it has long suffered from a lack of efficient payment and settlement systems. But new research from TowerGroup suggests that following a recent series of modernizations in and to China's national payments infrastructure - including the completion of modern clearing and settlement systems in 2007 - China now possesses national payment capabilities worthy of an economic powerhouse.  
 
In 10 years, through the Chinese National Advanced Payment System initiative, China's Central Bank developed and implemented three new payment systems using state-of-the-art technology. The systems provide a national network for high-value payments, bulk low-value payments and national check-image exchange. 
 
TowerGroup says that access to national clearing, along with enhanced funds transfer capabilities with Hong Kong, will better facilitate intra-regional trade for domestic Chinese and foreign companies alike. 
 
"The fragmented banking system and lack of a national payments infrastructure has constrained intra-regional trade among China's provinces," said Colin Kerr, a senior analyst at TowerGroup. "In order to take full advantage of the tremendous economic opportunities now flowing to China, the country must continue to embrace more efficient and effective national payment and settlement systems." 
 
Historically, China has been a cash-based society suffering from inefficient, fragmented local payment systems. Business payments were primarily made by check, but clearing occurred within cities rather than cross-country.
 
Debit cards now outstrip credit cards by a ratio of 22 to one, with spending across both debit and credit totaling approximately CNY 1.89 trillion (U.S. $251 billion) in 2006.  However, this is still just a fraction of the reported value of checks cleared in 2005 (CNY 350 trillion) in China. 
 
Hong Kong has long been considered the banking capital of Asia, and China has been content to leverage that reputation and infrastructure rather than try to force change of Hong Kong's currency or payment infrastructures. The Chinese government has employed a "one country, two systems" policy that enabled its socialist economy to coexist with the capitalist economy of Hong Kong. But the separate payment systems of China and Hong Kong are now becoming more tightly integrated to support the interests of travelers and businesses operating in the neighboring regions.

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