Author: Liang Yu
Editor: Zhao Yidan
A financial infrastructure spanning the Middle East and China is being rapidly constructed, which will significantly reduce cross-border payment costs and open efficient circulation channels for the $16 trillion real-world asset market.
On November 19, local time, the People's Bank of China and the Central Bank of the UAE signed a Memorandum of Understanding on the "Cross-Border Payment Interconnection between China and the UAE," marking a new phase in financial infrastructure cooperation between the two countries. According to a report by Caixin on November 21, this cooperation will establish a regulatory framework for cross-border payment cooperation between China and the UAE, achieving direct interconnection of the two countries' fast payment systems.
This cross-border payment network is viewed by the industry as a "golden channel" connecting Eastern and Western financial markets, indicating that cross-border payments and asset flows between China and the UAE will enter a new phase of greater efficiency and lower costs. At the same time, the "Interconnection of the China-UAE Fast Payment System" and the first transaction of the "UnionPay-Jaywan" dual-brand card, along with the UAE Multilateral Digital Currency Bridge (JISR) project, have been launched simultaneously. This series of initiatives covers three major areas: retail payments, card-based payments, and digital currencies, creating unprecedented infrastructure conditions for the cross-border flow of real-world assets (RWA).
I. Paradigm Shift in Global Financial Infrastructure
The signing of the China-UAE payment interconnection project represents a silent revolution in the global financial system. This cooperation goes far beyond traditional bilateral economic and trade cooperation and is a forward-looking layout for the next generation of financial infrastructure.
From a technical architecture perspective, the three projects launched this time constitute a complete payment ecosystem. The interconnection of fast payment systems addresses the demand for small, high-frequency transactions at the retail end; the "UnionPay-Jaywan" dual-brand card establishes a wide offline acceptance network; while the multilateral digital currency bridge (JISR) targets wholesale-level large cross-border settlements. These three levels precisely cover the comprehensive payment needs from ordinary consumers to large institutions.
From a geopolitical economic perspective, this cooperation reflects profound changes in the global financial landscape. Juma Al Kait, Assistant Undersecretary for International Trade Affairs at the UAE Ministry of Economy, previously stated in an interview with Reuters that "looking east is a common choice for important investors such as sovereign funds in the Middle East." This strategic shift is reflected not only in investment preferences but also in the co-construction of financial infrastructure.
From the perspective of future development, this payment infrastructure paves the way for the development of new financial businesses in the digital age. Especially with the accelerated trend of tokenization of real-world assets (RWA), an efficient and low-cost cross-border payment network has shifted from being "optional" to a "necessity."
II. Evolution Path of Real-World Asset Tokenization
Tokenization of real-world assets (RWA) refers to the process of converting physical assets into divisible and tradable digital rights certificates through blockchain technology. This field has undergone a significant evolution over the past decade.
According to the Financial Stability Board (FSB) report on "Tokenized Finance" published in 2023, the development of RWA can be divided into three distinct stages. The period from 2014 to 2017 was exploratory, during which Wall Street financial institutions began experimenting with blockchain technology. The largest clearing and settlement institution in the U.S., DTCC, partnered with the former Chief Investment Officer of Morgan Stanley to invest in the enterprise-level blockchain company R3CEV, attempting to achieve a more efficient asset settlement network without using cryptocurrencies.
From 2018 to 2022, it was the proof-of-concept period, during which the concept of Security Token Offerings (STO) gained widespread attention. The representative project tZERO attempted to directly tokenize stocks, achieving "T+0" settlement and directly connecting with retail investors. However, the technology and regulatory environment during this period were not yet mature, and most projects remained in the experimental stage.
Since 2023, RWA has entered a period of accelerated development. A report by the Boston Consulting Group in October 2023 predicts that by 2030, the market size for RWA tokenization will rise to $16 trillion. The release of this enormous potential is directly constrained by the level of improvement in cross-border payment infrastructure.
III. Payment Efficiency Constraints on RWA Development
The core value of RWA tokenization lies in enhancing asset liquidity, but achieving this goal is severely constrained by the efficiency bottlenecks of traditional cross-border payment systems.
The Bank for International Settlements (BIS) report on "Future Payment Systems" published in 2023 pointed out that cross-border payments under the traditional correspondent banking model typically take 2-3 working days to complete, with fees often reaching 3%-5% of the transaction amount. This high-latency, high-cost payment environment sharply contrasts with the "instant settlement, low-cost circulation" pursued by blockchain technology.
Specifically in the RWA field, low payment efficiency directly restricts the expansion of its application scenarios. For example, in tokenized real estate investment, even if the asset itself has been fragmented through blockchain, the cross-border distribution of rental income still relies on the traditional banking system, leading to extended actual receipt times and increased costs for investors.
The lack of regulatory coordination further exacerbates this dilemma. There are significant differences in regulatory policies for digital assets across different jurisdictions, with a lack of unified regulatory standards and comprehensive cooperation mechanisms. The EU's MiCA framework, Hong Kong's licensing system for virtual asset service providers, and the requirements of the Dubai Virtual Assets Regulatory Authority each have their unique characteristics, increasing the compliance complexity of RWA cross-border circulation.
The International Monetary Fund (IMF) clearly stated in its "Global Financial Stability Report" in October 2023 that modernizing cross-border payment systems is a key prerequisite for unleashing the potential of digital assets. The cross-border payment cooperation regulatory framework being constructed between China and the UAE is an important attempt to address this challenge from a top-level design perspective.
IV. Innovative Value and Application Prospects of the China-UAE Solution
The three major pillar projects of China-UAE payment interconnection each target different RWA application scenarios, collectively forming a multi-layered infrastructure system that supports asset cross-border flow.
The fast payment system interconnection primarily serves small, high-frequency transaction scenarios. According to the People's Bank of China's "2023 Payment System Operation Overview," the amount of mobile payment transactions in China reached 185.7 trillion yuan in 2023, covering a wide user base. The interconnection of this system provides a convenient subscription and dividend channel for future fragmented RWA investments aimed at the general public.
The significance of the "UnionPay-Jaywan" dual-brand card lies in its ability to connect offline acceptance. According to the UAE Central Bank's "2023 Payment System Development Report," credit card transaction volume in the UAE grew by 23% year-on-year in 2023, indicating that card-based payments still hold an important position locally. The launch of the dual-brand card allows financial products based on RWA to be used in physical scenarios, significantly enhancing practicality and liquidity.
The multilateral digital currency bridge (JISR) project is the technological core of the entire system. Pilot results from the BIS Innovation Hub in 2023 showed that cross-border payment solutions based on central bank digital currencies (CBDC) could reduce transaction costs by about 50%, shortening settlement times from several days to a few minutes. For large, high-value RWA transactions, this "payment equals settlement" feature is revolutionary.
V. From Concept to Practice: Specific Application Scenarios of RWA in China-UAE Cooperation
The construction of China-UAE payment interconnection is built on years of accumulated economic and trade cooperation between the two countries, and these cooperative projects themselves may become the first application scenarios for RWA tokenization.
In the green energy sector, the Dubai 950MW solar thermal photovoltaic power station project demonstrates the potential for large-scale infrastructure investment. According to disclosures from the financing party, the Agricultural Bank of China Dubai Branch, the total investment in this project amounts to $4.4 billion, utilizing a complex syndicate loan structure. In the future, this project could open asset shares to a broader group of investors through RWA tokenization, allowing small and medium investors to participate in large infrastructure investments at a lower threshold, while the payment interconnection system provides technical support for real-time cross-border distribution of returns.
The bond market is another important application area. According to the 2023 annual report of the Nasdaq Dubai Exchange, the $2 billion sovereign bond issued by the Chinese Ministry of Finance on that exchange received more than three times oversubscription. This strong investment demand provides a market foundation for the tokenization of bond-type assets. The establishment of the payment interconnection system reduces the settlement time for cross-border bond investments from the traditional T+2 to nearly real-time, significantly improving capital utilization efficiency.
The application prospects in trade finance are particularly broad. The UAE, as a trade hub in the Middle East, has seen its commodity trade scale with China continue to expand. According to statistics from the General Administration of Customs of China, the bilateral trade volume between China and the UAE exceeded $100 billion in 2023, a year-on-year increase of over 20%. The introduction of blockchain technology can enable the tokenization of warehouse receipts for commodities such as oil and precious metals, combined with the instant settlement function of the digital currency bridge, greatly enhancing transaction efficiency and reducing trade finance costs.
In terms of sovereign investment, UAE sovereign funds have actively laid out investments in Chinese assets in recent years. Data disclosed by the Abu Dhabi Investment Authority in the third quarter of 2023 shows that its holdings in Chinese listed companies have exceeded $5 billion. The combination of payment interconnection and RWA provides Middle Eastern investors with a more convenient channel for investing in Chinese assets, while also creating favorable conditions for Chinese capital to enter the Middle Eastern market.
VI. Reconstruction and Challenges of the Global Financial Landscape
The establishment of China-UAE payment interconnection not only benefits bilateral economic and trade relations but may also have far-reaching impacts on the global financial system. However, this process also faces multiple challenges, including technology, regulation, and market acceptance.
From the perspective of technical standards, different blockchain networks and asset protocols need to achieve a higher level of interoperability. The International Organization for Standardization (ISO) is developing blockchain and distributed ledger technology standards to establish a unified framework for this field. The "RWA-Chain" alliance chain technology solution from Huamin Data, by adopting a modular architecture and layered design, ensures data privacy while handling high-concurrency transactions, providing a scalable technical solution for cross-border payment scenarios.
Regulatory coordination is another key challenge. Although China and the UAE have established a cross-border payment cooperation regulatory framework, the compliance issues involved in RWA are more complex. In specific implementation, the regulatory agencies of the two countries have established a joint working group to regularly coordinate on key issues such as digital asset classification, investor suitability management, and anti-money laundering standards, striving to promote innovation while ensuring financial stability.
Cultivating market acceptance takes time. The UAE Central Bank is promoting investor education programs, gradually building market confidence through sandbox regulation and pilot projects. The regulatory framework of the Abu Dhabi Global Market (ADGM) provides a clear legal status for digital assets, significantly enhancing the willingness of institutional investors to participate.
The International Monetary Fund pointed out in its "Global Financial Stability Report" in October 2023 that digital currencies and tokenized assets have the potential to improve the efficiency of the financial system, but a sound regulatory framework and cross-border cooperation are needed to manage related risks. This judgment accurately identifies the main contradictions at the current stage of development.
VII. Outlook: From Payment Interconnection to Asset Interconnection
The launch of the China-UAE payment interconnection project marks a new stage in the evolution of global financial infrastructure. From a longer-term perspective, this cooperation may lead to several important trends:
The process of diversification in financial infrastructure may accelerate. Currently, international cross-border payments heavily rely on a few systems, posing a single point of failure risk. The payment infrastructure co-constructed by China and the UAE provides more options for the international community and promotes the diversified development of the global financial governance system. Some member countries of the Association of Southeast Asian Nations and the African Union have expressed interest in this cooperation model, potentially forming a broader payment network alliance in the future.
The demonstration effect of countries participating in the "Belt and Road" initiative is worth looking forward to. As more countries join similar payment interconnection networks, a new type of cross-border payment ecosystem covering a wide area will emerge. According to the World Bank's "2023 Digital Payment Development Report," over 100 countries are currently exploring or developing central bank digital currency projects, and the future interconnectivity of these projects will create new possibilities.
The efficiency of capital allocation may see significant improvement. Traditional barriers to cross-border capital flows exist, while the combination of blockchain-based RWA assets and efficient payment networks is expected to significantly lower the threshold for cross-border investment. A report by McKinsey in 2023 titled "Economic Impact Analysis of Asset Tokenization" indicates that tokenization could reduce transaction costs for certain asset classes by up to 80%, while significantly enhancing liquidity.
The balance between technological innovation and regulatory innovation will become increasingly important. Technological solutions need to consider both performance and compliance requirements, such as achieving a balance between transaction privacy protection and regulatory transparency through zero-knowledge proof technology. The coordinated advancement of technological and regulatory innovations will provide important references for the modernization transformation of the global financial system.
In the Dubai desert, the 262-meter-high solar tower is not only a symbol of energy innovation but also a testament to China-UAE financial cooperation. Behind it is a $400 million syndicated loan involving the Agricultural Bank of China’s Dubai branch, and this "Chinese enterprises + Chinese finance" model provides a practical reference for the future on-chain and cross-border flow of more assets.
As the "golden channel" of China-UAE payment interconnection gradually improves, we may witness profound changes in the way global assets flow. This channel not only connects China and the UAE but may also become an important financial infrastructure linking Asia and the Middle East, radiating to countries along the "Belt and Road" initiative. When real-world assets merge with advanced digital financial infrastructure, capital, technology, and industries will be reconfigured in new dimensions, providing a new paradigm for South-South cooperation and opening a new chapter in global financial collaboration.
Sources of some materials:
· "UAE Payment Cooperation Project Officially Launched"
· "Funding Lights Up the Silk Road Green Energy, Helping the Dubai Desert Grow an 'Energy Oasis'"
· "China-UAE Financial Cooperation Continues to Deepen"
· "Huamin Data: Driving the Digital Value Leap of Listed Companies through 'Asset On-Chain'"
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