By Chen Wei-chen | 2026-03-31

Chinese mobile payment platforms are expanding across Japan. Transactions routed outside the domestic banking system could undermine tax oversight and financial regulation, say authorities.

The issue surfaced publicly on March 11, when Tsukasa Abe of the Japan Innovation Party questioned regulators in parliament.

The growing use of Alipay and WeChat Pay among merchants in Japan allows some domestic transactions to bypass the country's financial system, he said.

"Even when transactions take place at stores in Japan, the flow of funds is handled through bank accounts and payment infrastructure inside China," Abe said. The trend could lead to a "parallel" economic sphere outside Japan's system, he said.

Parallel flows

Chinese business clusters in Tokyo's Ikebukuro and Saitama's Nishi-Kawaguchi neighborhoods now dominate entire blocks. In some areas, hundreds of shops rely primarily on Alipay and WeChat Pay, with transactions largely bypassing the yen.

"We don't even use much Japanese, and we hardly need yen anymore," a Chinese immigrant businessman told the Sankei Shimbun. "This is already China."

The system deducts payments directly from customers' Chinese bank accounts and deposits merchants' revenues in China, according to lawmakers and local media reports.

Because such transactions do not pass through Japanese financial institutions at any stage, authorities have limited visibility into the flow of funds. Tax agencies therefore face difficulty verifying actual sales volumes and taxable income.

The practice creates two core risks, said Abe.

From a taxation standpoint, "even when the underlying economic activity takes place in Japan, tax authorities may struggle to track income and sales if the flow of funds cannot be traced domestically."

It could enable economic activity to operate outside Japan's regulatory framework and increase exposure to illicit finance, he said.

Finance Minister Satsuki Katayama, who responded to Abe's questioning, described the issue as "extremely serious." Existing laws lack the mechanisms to regulate transactions outside the domestic banking infrastructure, she said.

"It has probably become extremely difficult in practice to enforce legal registration requirements and exercise supervisory authority," she said.

The government needs to address regulatory gaps to ensure fairness and maintain public confidence, she said, adding that the situation "must be corrected" as part of broader efforts to manage foreign-resident policy and economic integration.

Regulatory gap

However, enforcement remains structurally constrained.

When transactions pass entirely through overseas accounts without linking to Japanese banks, regulators have trouble registering and supervising foreign payment operators. Existing frameworks rely heavily on domestic financial intermediaries.

Since the 2010s, Japanese retailers, from supermarkets and convenience stores to department stores such as Takashimaya, have adopted Chinese mobile payment systems to accommodate free-spending Chinese tourists.

In China, such platforms now account for roughly 80% of transaction volume, reinforcing their global reach and user dependence. By last September, domestic platforms such as PayPay and NTT Docomo had begun supporting WeChat Pay, further integrating these systems into Japan's retail environment.

Trying to clean up system

However, some Japanese retailers have recently begun phasing out support for Alipay and WeChat Pay. Their logos have become less visible in stores.

Some observers consider the shift an early sign of economic "decoupling," reflecting both geopolitical tensions and growing regulatory sensitivity.

Industry participants say such transactions are not necessarily outside regulatory reach.

In many cases, cross-border mobile payments involve partnerships with locally licensed acquiring institutions that process settlements and ensure compliance with domestic tax and anti-money-laundering requirements.

The model is comparable to international card networks, where multiple jurisdictions share responsibility for oversight, the industry insiders say, according to Vision Times.

Enforcement risks

At the same time, authorities remain concerned about misuse and enforcement gaps.

Organized groups have exploited mobile payment systems to facilitate cross-border fund transfers, including schemes in which the culprits resell goods purchased in Japan to convert yuan into yen or US dollars, say analysts.

Japanese authorities have stepped up enforcement, including dismantling a Chinese-linked group accused of laundering funds by buying luxury condos last October, PaymentsJournal reported.

Money laundering has become a profitable industry in China, as tighter capital controls have driven illicit cross-border flows. Such networks launder up to $150 billion annually, the US Treasury estimates.

Blockchain analytics firm Chainalysis said Chinese-language money-laundering networks processed $16.1 billion in cryptocurrency in 2025, accounting for about 20% of known global laundering activity.

Japan is considering legal revisions that would classify such transactions as domestic for regulatory purposes, expand oversight and close loopholes, said Katayama.

The issue is likely to come up within the Group of Seven, as governments seek coordinated responses to cross-border digital payment risks, she added.