What signal does the intensive coverage of digital RMB by central media send? Will hard wallet system products be the best observation point?

On June 24, the Economic Daily's Financial Observation published a report titled "How Digital RMB Promotes Consumption" (Reporter Chen Guojing), which was then reposted by many central media outlets including China National Radio's China National Radio, Xinhua News Agency's Xinhuanet, and China Daily Online. It has become the latest and most influential report on the digital RMB by central media in recent times.

Previously, Guangming Online, a subsidiary of Guangming Daily, forwarded a report published by Yangcheng Evening News on June 21 titled "Digital RMB successfully paid for provident fund deposits", introducing the application of digital RMB in provident fund management.

Image source: Xinhuanet

On June 20, China Central Television's CCTV News Channel released a report titled "People's Bank of China: Understanding Digital RMB to Say No to New Scams", introducing how to use digital RMB to prevent various new types of fraud, as well as the progress of the digital RMB pilot.

On June 13, People's Daily Online, a subsidiary of the People's Daily, published a report on its Shanghai channel titled "The first digital RMB auto insurance policy is issued by Sunshine Insurance, and UnionPay Business's digital RMB scenarios continue to expand!", introducing the first insurance policy paid in digital RMB on June 10 and the application prospects of digital RMB in the insurance industry.

Earlier in early April, Xinhua News Agency released a press release stating that the People's Bank of China had "expanded the scope of the digital RMB pilot program again." This was not only widely forwarded by multiple central media outlets such as People's Daily Online, ministry media such as Science and Technology Daily, and local media, but also reported by overseas media outlets. At the same time, Xinhua News Agency's Xinhuanet has been following up on the digital RMB pilot program in Chongqing and other places in recent times.

We will provide links to these reports later. From these and other reports, it can be seen that digital RMB can not only be used to pay for goods, but also to buy insurance and other services, pay medical expenses, and facilitate corporate tax payment... More importantly, it can stimulate consumption in the current environment - this is one of the most important economic tasks. But with it comes a new question: will the digital RMB be fully promoted soon?

2025?

There is no doubt that the digital RMB will have a profound impact on the daily life and financial activities of each of us. These reports have raised expectations for the transition of the digital RMB from pilot to full implementation. From the "Financial Standardization 14th Five-Year Plan" jointly issued by the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission, the four departments clearly pointed out that they will comprehensively consider the secure and trusted infrastructure, issuance system and storage system, registration center, payment transaction communication module, terminal application, etc., and explore the establishment and improvement of the legal digital currency infrastructure standards.

The plan also states that by 2025, a standard system that is compatible with the modern financial system will be basically established, the economic, social, quality and ecological benefits of financial standardization will be fully demonstrated, and the status and role of standardization in supporting the high-quality development of the financial industry will be more prominent. In addition, many provinces and cities have also included digital RMB in their 14th Five-Year Plan to provide support for the full promotion and implementation of digital RMB.

Given that my country has the second largest economy and the largest population in the world, if the digital RMB is to be implemented in 2025, we need to race against time, and the 14th Five-Year Plan is not a distant goal. If we really work backwards from this time, after further expanding the scope of the pilot without major problems, the deployment of many infrastructures and the launch of hardware wallet products should begin soon, and the intensive publicity of many central media also seems to be in line with this timeline.

Vending machines that accept digital RMB payments (Image source: Qianjiang Evening News)

However, judging from the stock market, which has always been sensitive to the market, the A-share market has not made much noise since the People's Bank of China announced the further expansion of the pilot scope in early April, which set off a wave of digital RMB enthusiasm. Of course, this is related to the impact of the epidemic in Shanghai and Beijing, and also related to the fact that many companies in the wave of digital RMB concept stocks that were hyped had poor performance, small scale and no core technology.

Therefore, a new observation mode is to look at the core technology and product suppliers of the digital RMB, such as the performance of China Electronics HuaDa Technology (00085.HK), a core player in the digital RMB under the state-owned enterprise and Fortune 500 China Electronics Information Industry Group (CEC).

New angle: Hard wallets that require longer lead times

The digital RMB has two major special functions: first, it is legal tender, which is different from the online payment systems of WeChat and Alibaba and digital cryptocurrencies such as Bitcoin and Ethereum; second, it has the function of a hard wallet that can complete offline payments, that is, the chip can be installed on devices such as wearable devices and IoT devices without relying on Internet-connected mobile phones, so that the elderly, children and more commercial occasions can use digital RMB, which is expected to open up a larger application space in the market than relying on mobile phones to complete payments.

According to the "White Paper on the Development Progress of Digital RMB in China" released by the People's Bank of China in July last year, the design of digital RMB wallets should realize the full-scenario application of digital RMB online and offline, meet the differentiated needs of users with multiple subjects, multiple levels, multiple categories and multiple forms, ensure that digital wallets are inclusive, and avoid the use barriers caused by the "digital divide". Therefore, the hard wallets that can be used for offline payment of digital RMB are expected to have wider applicability.

Image source: People's Bank of China's White Paper on the Research and Development Progress of China's Digital RMB

The white paper clearly states that the digital RMB "is divided into soft wallets and hard wallets according to the carrier. Soft wallets provide services to users based on mobile payment apps, software development kits (SDKs), application programming interfaces (APIs), etc. Hard wallets implement digital RMB-related functions based on technologies such as security chips, and rely on IC cards, mobile phone terminals, wearable devices, Internet of Things devices, etc. to provide services to users. The combination of soft and hard wallets can enrich the wallet ecosystem and meet the needs of different groups of people."

It is not difficult to imagine that the digital RMB hard wallet will change the payment method of digital RMB from "scan" to "touch", so the final product will have a wide variety of forms, and reading and writing equipment will be everywhere. In addition to conventional IC card forms such as financial cards, social security cards, and transportation cards, and card-type devices with ink display styles, there are also watches, bracelets, and even keychain-shaped hard wallets, such as the "Ice Core" and "Snow Ring" series used in the Winter Olympics. At the same time, there will be a large number of POS machines, vending machines, charging piles, and other types of equipment (reading and writing equipment) to complete digital RMB transactions.

What do the penny stocks of China Chip, a state-owned enterprise, indicate?

Therefore, the security chip for hard wallets is one of the core technologies of the digital RMB. It is a high-quality market with broad prospects but not accessible to everyone. Currently, there are two companies engaged in the security chip of the digital RMB hard wallet. One is Ziguang Guowei (002049), with a market value of more than 110 billion yuan, and the other is Beijing CEC Huada Electronics, a wholly-owned subsidiary of CEC's Hong Kong-listed company CEC Huada Technology (00085.HK). The average market value of the latter in the past 30 days has not exceeded 1.5 billion yuan.

Digital RMB hard wallet chip solution (Image source: China Electronics HuaDa Electronics website)

China Electronics HuaDa Electronics has a "good background". It originated from my country's first fully independent pure chip design company, founded in the mid-1980s. It is the largest domestic and one of the world's top security chip providers. It has undertaken many major projects and key standard setting for the country in information security and financial security. It holds more than 500 patents, software copyrights and integrated circuit layouts, and has cumulative chip shipments of more than 20 billion. It can be said that almost every Chinese may be the company's end customer.

China Electronics HuaDa Electronics is one of the core technology providers and important players in the digital RMB hard wallet. Its importance and development prospects are far more worthy of attention than many digital RMB concept stocks on the A-share market. However, the daily trading volume of the shares of China Electronics HuaDa Technology, a core player and wholly owned shareholder in the Hong Kong stock market, is sparse. In the context that even Hong Kong-listed Chinese chip companies are trying to issue A-shares, its recent market value has not exceeded 1.5 billion yuan and its price-to-earnings ratio is only 5 or 6 times, which is much lower than those digital RMB concept stocks.