The Chinese regulatory body has reportedly requested Tencent Holdings to decrease the market share of its widely used WeChat app in the mobile payment sector. This development follows shortly after the launch of the digital yuan pilot project in Hong Kong.

Sources indicate that Beijing's call to Tencent primarily focuses on reducing the market dominance of in-person QR code payments facilitated by WeChat Pay instead of online shopping transactions. While specific reduction goals have not been officially disclosed, Tencent insiders reveal the company's cautious approach to expanding its user base quickly due to regulatory uncertainties.

Despite the presence of around 185 non-bank payment institutions, WeChat Pay and Ant Group's Alipay currently dominate China's mobile payment landscape. The regulatory efforts seem to be in line with Beijing's broader agenda to support its state-backed digital currency, the digital yuan, also known as e-CNY.

Launched in 2020, the digital yuan has faced challenges in gaining widespread acceptance, with some officials expressing concerns about keeping funds in the e-CNY app due to its lack of interest-bearing features and limited usability.

Following the initiation of the first digital yuan pilot project outside China's mainland, which allows Hong Kong residents to load digital wallets with up to 10,000 CNY through 17 retail banks, peer-to-peer transactions remain restricted.

In the first quarter, China's total mobile transactions through third-party providers exceeded 92 trillion yuan, with QR code transactions amounting to 15.59 trillion yuan. The government's request to Tencent appears to be part of a strategy to prevent private tech giants from overshadowing the state-endorsed digital currency, aiming to facilitate the digital yuan's integration into the daily financial activities of Chinese citizens.