Wang Xing and Wang Shanshan
The QQ All-in-One Card is issued by
Tencent and China Merchants Bank in Hangzhou, Zhejiang Province, on
November 8, 2005. (File Photo)
BEIJING, Dec. 26 -- The virtual world seems to be
making inroads into reality, though there are signs that the government is
In the latest wrinkle in the fabric separating
reality from virtual reality, virtual money is being exchanged for real yuan on
a booming scale. The practice is so widespread that it has raised concerns that
virtual money could challenge the renminbi's status as the only legitimate
currency in China.
Last month, the country's top financial and Internet
regulatory officials made repeated public statements about how they were
weighing different proposals to manage the virtual economy.
Tencent, China's largest instant messaging service
provider and the issuer of the virtual Q Coin, took the message to heart and
filed a lawsuit against a website that exchanges the money in a bid to clamp
down on the cross-over economy.
The company, which is listed on the Hong Kong Stock
Exchange (SEHK 700), has not been affected by the situation, and its stock price
Still, analysts said the involvement of top financial
regulators would only spur the development of virtual money.
The possibility of regulatory action was first raised
by Li Chao, spokesman for the People's Bank of China (PBOC), on November 3. He
said at a working conference in Southwest China's Chongqing Municipality that
virtual money had become a cause for concern and that the PBOC would draft a
regulation covering virtual transactions next year.
A week later, Xie Zhong, deputy director of the
PBOC's Payment System Department, said the central bank was drawing up
regulations, but did not reveal details.
Su Ning, vice-president of the PBOC, told a working
conference on December 14 that imposing regulations on virtual money would ease
the risk posed by the virtual currency trade. "The risks could be large," he
said. "When money is saved in virtual accounts on websites, it can be used for
investments or simply grabbed."
Any potential regulations would cover virtual
accounts, transactions and also money, he added.
Besides financial regulators, Internet regulators
also have their eyes on the virtual economy.
"Virtual money has been a source of great concern for
the government because it reflects a kind of Internet addiction," Tuo Zuhai,
deputy director of the Ministry of Culture's market department, which monitors
the Internet, was quoted as saying by the Nanfang Daily on December 8.
"It is becoming the focus of our work to look into
websites involved in exchanging virtual money into real yuan, in buying and
selling virtual items and in hacking into other people's accounts to plunder
their reserves," he said in the report.
These remarks were part of the growing debate over
the legitimacy of the virtual money.
The issue came to light last month when Yang Tao, a
public prosecutor in East China's Jiangxi Province, published an article in the
Chinese-language magazine Law and News asking whether virtual Q coins were a
threat to the yuan.
More than 22.4 million people use Tencent's QQ
messaging service, and the Q coin is widely regarded as a more convenient
currency for paying for online services than the RMB.
Q coin holders have their own accounts at Q banks.
They can buy the virtual coins from Tencent's official website for 1 yuan (13 US
cents) per coin, or from online vendors at about half the price.
They mainly use Q coins to buy virtual goods, like
weapons in online games, and sometimes real-world items such as CDs and
However, in the online black market, these coins are
also being converted back into cash. Evidence of the prevalence of these cyber
space exchanges has even show up in court, where the number of cases involving
online property has grown in the past two years.
In one extreme case last year, an online gamer in
Shanghai killed another player who had taken his cyber-weapon, called a Dragon
Sabre in the popular online game Legend of Mir III, and sold it for 7,200 yuan
The gamer almost forfeited his real-world life for
doing so when he was handed a death sentence with a two-year reprieve.
Still, Tencent spokeswoman Catherine Chan said in a
written statement that the company's virtual money did not pose a threat to the
Q coins were created to work as tokens for the
consumption of the company's online services, and the Q coin "is definitely not
a currency," she said.
"We do not have a mechanism to facilitate these
operations (Q coins being exchanged into RMB) and we are also against the
transaction of Q coins solicited via dubious operations," she added.
But what would happen if Tencent went bankrupt? That
would be a terrible day for netizens, said Liang Chunxiao, chief analyst at
Chinalabs, a Chinese information technology counselling firm.
The PBOC's biggest concern about virtual money should
be how to insure the solvency of the organizations that issue it, he said.
"If Tencent one day went bankrupt, the Q coin would
completely lose its value," said the analyst.
He added that althoug bankruptcy was unlikely, there
was still a risk of its happening in the future.
One possible action the PBOC could consider taking
would be to ask outfits that circulate virtual money to set up a reserve account
at a designated bank to guarantee their solvency on behalf of the public, he
Earlier this year, Alibaba set up such a system with
the Industrial and Commercial Bank of China (ICBC) to cover its online payment
platform, Alipay. The ICBC has been releasing monthly reports on Alipay's
solvency since last May.
"The co-operation between Alipay and ICBC has helped
Alipay win the trust of its customers," said Liang. "I think organizations that
circulate virtual money would be pleased to set up similar systems."
Liang said the PBOC's Administrative Measures on
Payment and Settlement Organizations, which are meant to regulate online payment
companies in China would serve as a template for regulating virtual money. The
measures are expected to be issued as early as this month.
"Under these measures, all online payment companies
in China have to get a license from the PBOC in order to continue their
business," he said. "I think the regulation on virtual money will follow a
However, Ala Musi, deputy director of the Legal
Committee under the China Electronic Commerce Association, said that instead of
bringing virtual money under the control of the real currency system, the PBOC
would be more likely to expand the current currency system into the virtual
He said virtual money had emerged in recent years as
a convenient payment tool for the consumption of online value-added services
because e-commerce facilities and legislation process are lagging behind demand
"I think the PBOC may release the regulation together
with the Ministry of Information Industry and the Ministry of Commerce," he
Rather than waiting passively for the regulation,
Tencent is striving to form an alliance between the Q coin and the currency
system in the real world.
Last month, the company announced that it would
co-operate with the Industrial Bank to launch China's first virtual credit card,
called the QQ Show Card, which will be attached to a real card and can be used
to prepay for online value-added services after being connected with a user's QQ
Last year, the company also launched a debit card
called the QQ All-in-One Card in co-operation with China Merchants Bank. To date
there are more than 1 million QQ All-in-One Cards in circulation.
Experts said Tencent's efforts to combine the virtual
money payment system with real financial institutions would help the company
ease the public anxieties and reduce its operational risk.
"We are in communication with some financial
regulators in China, and we are preparing for a potential licensing offer from
them," Martin Lau, Tencent's president, reportedly said at a third-quarter
earnings conference call on November 22, according to a record provided by
Meanwhile, Tencent sued Taobao.com, one of China's
largest consumer-to-consumer marketplaces, in Shanghai on December 21. It said
the latter had become one of the most popular websites for netizens to buy and
sell Q coins, and therefore undermined its control over the virtual money.
However, Liang said that Tencent did not have to
worry too much.
"I don't think the PBOC's regulations will harm these
companies' ability to offer online value-added services," he said.
"On the contrary, I think the involvement of China's
top financial regulator will help clarify the appropriate uses of virtual money
and boost its development by solving the existing problems through regulation,"
Moreover, although it appears that efforts to
regulate virtual money are on the way, experts estimated that draft versions of
the new rules would not be available for several years.
"I don't think the PBOC will be able to work out a
draft in the next one or two years," said Liang. "I think the rise of virtual
money is quite a new issue that should be subject of long-term research."
"In the long term, the country's financial watchdogs will surely take the virtual money under supervision," said Ala Musi, noting that the PBOC was unlikely to risk smothering a potentially promising industry by drafting regulations in haste.
"No matter when it comes out, the regulation will surely help the development of virtual money, which will benefit companies like Tencent," he added.
(Source: China Daily)