Digital Silk Road and Cross-border Payment Integration between Malaysia and China: Policy Synergies, Frictions, and Impacts on SME Transaction Costs

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Malaysia— Malaysia–China Digital Payment Gap Keeps SME Transaction Costs High, Study Finds. This research was conducted by Anran Qiao, Bee Wah Tan, and Mingpei Lu from the School of Economics, Finance and Banking (SEFB), UUM College of Business, Universiti Utara Malaysia, and published in the February 2026 edition of the Indonesian Journal of Business Analytics (IJBA).

The research, conducted by Anran Qiao, Bee Wah Tan, and Mingpei Lu, analyzed how the integration of cross-border digital payments between Malaysia and China within the Digital Silk Road framework impacts MSME transaction costs and identifies policy friction points that still hinder interoperability. The research also found an "integration gap" between technological readiness and bilateral policy coordination, which continues to maintain costs, delays, and compliance burdens for micro, small, and medium enterprises (MSMEs).

Domestic Readiness Is Strong, Cross-Border Coordination Lags

According to the study, Malaysia’s domestic electronic payment usage has expanded rapidly. As shown in Figure 1 (page 2), per-capita electronic transactions rose from around 150 in 2019 to approximately 409 in 2024, reflecting strong digital adoption supported by Bank Negara Malaysia.

However, the researchers argue that domestic payment maturity does not automatically reduce cross-border transaction costs. When Malaysian SMEs transact with Chinese partners, additional layers of intermediaries, foreign exchange (FX) conversion, compliance screening, and differing regulatory standards still apply.

This mismatch creates what the authors describe as an “integration gap.”

Three Main Cost Channels Affecting SMEs

The study identifies three primary channels through which policy frictions increase SME costs:

1️⃣ Search and Information Costs

Differences in QR standards, merchant onboarding rules, and registration requirements mean SMEs may need multiple systems for reconciliation. Without full interoperability between Malaysia’s DuitNow QR and China-based payment ecosystems, administrative burdens increase.

As discussed in the policy comparison table (Table 1, pages 5–6), partial standards mismatches can result in scan failures, refunds, and exception-handling costs.

2️⃣ Settlement and Liquidity Costs

Domestic transfers in Malaysia are near-instant, but cross-border transactions involve additional settlement layers. According to the paper’s benchmark comparison with G20/FSB targets (Table 2, page 6), retail cross-border payments should ideally cost no more than 1% and be credited within one hour for 75% of cases .

In practice, SMEs often face:

Longer processing times
Higher working-capital lock-up
Prefunding requirements
Opaque intermediary fees

These delays directly affect SME cash flow management.

3️⃣ FX Transparency and Conversion Costs

The study highlights foreign exchange spreads as a major friction. Without transparent MYR–CNY pricing and direct settlement integration, SMEs encounter what the authors describe as an “FX black box.”

Layered conversion fees and unclear spreads inflate costs and reduce predictability—particularly harmful for SMEs operating on thin margins.

Policy Pillars Behind the Frictions

The analysis maps transaction-cost issues against three governance pillars:

Data Governance
Malaysia’s Personal Data Protection Act (PDPA) and China’s Personal Information Protection Law (PIPL) impose cross-border data transfer conditions. Differences raise onboarding and compliance costs.
Clearing and Settlement Arrangements
Cross-border payments still rely heavily on intermediaries, increasing settlement delays and FX complexity.
Technical Standards Coordination
Partial QR and payment standard misalignment increases operational risk and reconciliation burdens.

The study emphasizes that these are institutional coordination challenges—not technological limitations.

Three Practical Reform Proposals

To close the integration gap, the authors propose a three-layer strategy:

🔹 1. Establish a Bilateral Regulatory Sandbox

A joint sandbox between Bank Negara Malaysia (BNM) and the People’s Bank of China (PBOC) could test:

Simplified KYC/AML for low-risk SME transactions
Controlled cross-border data-sharing corridors
Clear refund and dispute rulebooks

This allows experimentation without full-scale regulatory overhaul.

🔹 2. Harmonise Cross-Border QR Standards

True interoperability requires more than the ability to scan a code. The paper recommends:

Common QR payload mapping
Interoperable merchant identifiers
Real-time fee and FX disclosure at point of sale

ASEAN’s cross-border QR experiences offer design templates.

🔹 3. Explore Atomic Settlement and CBDC Pilots

Longer-term cooperation may involve central bank digital currency (CBDC)-related pilots. The principle of atomic settlement—where payment and FX conversion occur simultaneously—could reduce settlement risk and shorten waiting times for SMEs.

However, the authors caution that this should proceed through phased pilots rather than immediate large-scale deployment.

Why This Matters for SMEs

SMEs bear a disproportionate share of fixed compliance and reconciliation costs. Unlike large corporations, they lack the scale to absorb high FX spreads or prolonged settlement times.

The study argues that improving cross-border payment efficiency is not merely a technical upgrade—it is an SME competitiveness strategy.

When cost, speed, transparency, and access align with G20 targets, SMEs can:

Improve cash-flow stability
Reduce administrative overhead
Expand into cross-border e-commerce
Compete more effectively in regional trade

Author Profiles

Anran Qiao- UUM College of Business, Universiti Utara Malaysia
Bee Wah Tan- Universiti Utara Malaysia
Mingpei Lu- Universiti Utara Malaysia

Source

Qiao, A., Tan, B. W., & Lu, M. (2026).Digital Silk Road and Cross-border Payment Integration between Malaysia and China: Policy Synergies, Frictions, and Impacts on SME Transaction Costs. Indonesian Journal of Business Analytics (IJBA), Vol. 6 No. 1, hlm. 95–106.

DOI: https://doi.org/10.55927/ijba.v6i1.16182

URL: https://journal.formosapublisher.org/index.php/ijba