The virtual world seems to be making inroads into reality,
though there are signs that the government is fighting back.
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 remains steady.
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 (PBC), 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 PBC would draft a regulation covering virtual transactions
next year.
A week later, Xie Zhong, deputy director of the PBC'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
cosmetics.
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 (US$871).
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 real-world economy.
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 said.
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 cooperation 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 similar pattern."
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 world.
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 in China.
"I think the PBOC may release the regulation together with the
Ministry of Information Industry and the Ministry of Commerce," he
added.
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 number.
Last year, the company also launched a debit card called the QQ
All-in-One Card in cooperation 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 Thomson StreetEvents.
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," he added.
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.
(China Daily December 26, 2006)