China: The World’s First Digital Prison

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Artificial Friends

Q sits quietly in front of his voice-activated computer screen. He’s spent the morning searching online for an artificial friend, like the one he met at the computer expo. Melinda, her given name, was beautiful and helped him feel special, relating to him in a warm and friendly way. Her inner AI was superb. This is why Q now prefers artificial friends to dogs. The tag on Melinda’s sleeve read “Made in Japan.”

Q hesitated to push the buy button because the only currency that he could use to purchase Melinda was the Chinese e-CNY, or digital Yuan. This digital currency was first tested in April 2020 and later accepted at Walmart, and McDonald’s stores in Beijing. The government created digital currency as part of a broader push to exert control over technology companies. For example, Tencent Holdings LTD and ANT group founded by Jack Ma, co-founder of Alibaba Group and a billionaire, has only recently emerged from seclusion after the Chinese government canceled the public offering of ANT, a giant financial services company he owns. A bigger expansion of the digital Yuan is underway for the 2022 Winter Olympics.

Q doesn’t care much about who owns what, but he does care that the People’s Bank Of China—the government’s financial arm—has the ability to easily track his e-CNY purchases and could suck money out of his account if they decided to outlaw artificial friends. The use of the e-CNY allows the Chinese government a level of surveillance that isn’t possible with cash or independent digital currencies. If you are a citizen who is not in favor of the government, they just block your access to currency. Facial recognition for security and control is so 20th century by comparison.

What’s At Stake?

By June 2021, more than 24 million individual and enterprise users have created an e-CNY wallet generating transactions worth USD $5.3 billion to pay for utilities, restaurants, transportation, and retail items. China’s strategy to promote the currency internally has involved giving away 200,000 “red-packets” worth $6.2 million USD.

The Chinese government is simultaneously cracking down on multiple digital and crypto-currencies at home, for instance, Bitcoin. Companies have three choices: cooperate with the government, leave the country, or face extinction. The Chinese Central Bank, as of September 2021, has outlawed all transactions in crypto-currencies. It has ordered banks and payment platforms to stop facilitating transactions and issued bans on ‘mining’ the currencies. Arrests of citizens for violations are imminent.

China is now testing its digital currency cross-border in Hong Kong, Thailand, and United Arab Emirates. The government, according to Chinese state-backed research groups, is promoting issuing digital Yuan for countries engaged in their “Belt and Road” initiative, expanding global influence by building infrastructure abroad. In Africa, where I work: the Chinese government has taken the lead over the U.S. in lending $147 billion; imagine if this fiat lending converts into digital Yuan. All local commodity markets would begin to shift to the People’s Bank of China, e-CNY currency.

Unseating the U.S. dollar as the world currency is a secondary effect of promoting the digital Yuan. The Chinese government has denied this observation made by the Biden administration but continues to expand the e-CNY globally. It has raised the question, however, why should it continue to support U.S. debt by trading in its currency. This is a calibrated shot that has been fired.

Most conscious people in the world are aware that the U.S. national debt is approximately $16.5 trillion, or over 100 percent of GDP, growing by roughly $3 billion daily. Given the seemingly limited financial intelligence of most U.S. politicians, it is unsurprising that high levels of debt are being neglected, thus weakening the position of the U.S. globally.

The Republican response to stimulate the American economy is to cut taxes—income needed by the government to operate and pay debts—that has sent U.S. debt skyrocketing over the years. The U.S. has more of an income problem than a spending problem. Giving billionaires and 50 large companies tax breaks makes little financial sense.  

Myth Making

Milton Friedman was a Nobel Prize-winning economist and professor at the University of Chicago. In 1962, he wrote Capitalism and Freedom in which he argued that society couldn’t maintain political freedom without a robust commitment to free-market capitalism. Political freedom and free-market capitalism, from his perspective, were inseparable. 

Professor Friedman’s books sold over 1 million copies, reinforcing common beliefs. Over the past 40 years, few could deny that governments across the globe have adopted market-based solutions; reduced tax rates, and tariffs, privatized public monopolies, and promoted school vouchers as a way to create private choice in education. 

Friedman’s ideas—along with many other free-market mythmakers—have been broken for eons, yet they continue to motivate people in power. Consider that he and his cohorts, who later became known as the Chicago Boys, were responsible for guiding capitalist economies like Chile. Pinochet, a brutal military dictator, if you recall, overthrew Chile’s democratically elected government. Chileans had few if any real freedoms.  And school voucher programs introduced throughout the country by Friedman’s cohorts failed miserably. They accelerated the divide between social classes and educational levels while increasing budget deficits. Individuals who were financially well off were able to buy their kids a solid education. The others scrambled for very limited resources and teachers were poorly paid.

China is the most recent example of a capitalist economy governed by a communist state apparatus that is essentially fascist. The Chinese government demonstrates its brutality against political freedoms daily by locking up anyone who descents: civilians, writers, journalists, teachers, professors, and even doctors. Technology is used to capture the whispers of protest by monitoring networks.

And President Xi has altered the Chinese Constitution to appoint himself leader for life with the help of the Communist Party. He is following in Mao’s footsteps as a present-day dictator. Genuine democracy is perceived as a liability, often messy and cumbersome to lead. Professor Friedman’s ideas are as bankrupt as any promoted by other free-marketers. Capitalism does not translate into nor requires political freedom to operate and flourish. Dictators and drug lords alike are adept at using capitalism to achieve their ends.

Free-market ideas have allowed American corporations to operate mega-businesses in China with a minimal amount of ethics. Household brands like Apple Computer Company and NIKE completely overlook the Gestapo tactics undertaken by the Chinese government to squelch individual freedoms. The point for U.S. corporations is, after all, to generate as much profit for their shareholders as possible, no matter what the social or economic conditions.

One could cogently argue that it was American corporations that set China on its economic course today. These same corporations might support the Communist government in its efforts to maintain capitalist relations and social control at the cost of countless individual lives. Some apologists even argue that the value of freedom in the West is different than in China and we need to respect those differences—no matter who suffers.

The Q-dilemma

Q has not pushed the buy button yet. He has imagined becoming attached to Melinda only to have her snatched away by the People’s Bank of China. Depressing, he thought. This has recently appeared in the behavioral economics literature as the Q-dilemma. The request of Melinda’s retailer for either facial recognition or fingerprint to verify and match the purchase in addition to the e-CNY currency has only added to Q’s dilemma. Perhaps he could try buying his artificial friend at another time, using a different currency and supplier outside Japan. Only time will tell if he can subvert the e-CNY and claim what little is left of his freedom.   

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