State of Blockchain Technology in China
Throughout 2019, China remained a dominant player on the blockchain map of the world. While keeping its ICO and cryptocurrency trading ban in place and even actively pursuing prohibitive measures against crypto-related enterprises, it emerged as a potential global leader in terms of government-supported development of the tech’s non-currency applications. Despite the trading ban, China-based cryptocurrency miners still control the majority of bitcoin hashrate. Meanwhile, the People’s Bank of China is believed to be close to rolling out the digital, blockchain-based version of the national currency, a development that would make the nation a pioneer in the field of central bank-issued digital money. The year of 2020 is poised to become a critical juncture in shaping China’s potential blockchain dominance.
Xi’s pivot to blockchain
The Chinese government under President Xi Jinping has a record of publicly announcing specific technologies a strategic national priority before funneling enormous resources into the race to achieve global leadership on this specific front. It was the case with artificial intelligence when in 2017 the nation’s State Council released a development plan marking China’s path to world leadership in the space by 2030. A similar centralized push contributed to the fast development of commercial 5G networks.
October saw President Xi announcing the government’s intent to throw its weight behind blockchain in the same vein, as he called in a speech for “seizing the opportunities” that the technology offers for strengthening China’s digital economy. The move opened the floodgates for China’s largest companies to step up their blockchain game while giving a boost to bitcoin prices globally. A pilot zone for testing blockchain use cases has been set up in the southern island of Hainan, backed by a $142 million endowment. Some government offices, including records-heavy operations such as courts and tax administrations, immediately began experimenting with blockchain-based solutions. Furthermore, the Standardization Administration of China announced plans to form a committee that would oversee an effort to create a uniform regulatory framework for blockchain implementation.
Observers note that China’s push to establish global leadership in the field of blockchain-powered solutions is well-timed, as other major jurisdictions – notably, the United States – are still struggling to produce a coherent policy around the technology. In the context of tensions between the world’s two largest economies that are often dubbed a technology war, dominating the sprawling blockchain industry could give the nation a significant edge. China’s highly centralized system has so far proved efficient in bringing innovative technologies to fruition.
Chinese blockchain industry: Facts and figures
China’s spending on blockchain technology is on the rise. According to a report by the marketing intelligence firm IDC, the nation’s investments in the tech are expected to grow at an annual compound rate of 65.7 percent between 2018 and 2023, eventually reaching $2 billion.
In the year 2019, banking sector absorbed most of the blockchain-related expenditures in China, with uses such as manufacturing and retail were among other top industries to see the inflow of DLT investments. From March to December 2019, some 500 Chinese companies have registered blockchain projects with the Cyber Administration of China, flagship companies such as Tencent, Baidu, and Huawei among them. E-commerce champions like Alibaba and JD.com have already developed blockchain platforms to track products along the supply chain. The overall number of registered regional blockchain companies exceeds 27000.
China is a world leader in terms of the number of blockchain patent applications. According to Ledger Insights, between 2013 and 2018, a total of 4435 patent applications originated from the country, accounting for a staggering 48% of global applications. The U.S. came second with 1833 applications or 21 percent of the total. The 2019 statistics show that the number of applications is steadily on the rise.
In the financial sector, one remarkable use case this year has been the Bank of China’s issuance of 20 billion yuan ($2.8 billion) worth of blockchain-based special bonds aimed for small and micro-enterprises.
China also remains the dominant power in cryptocurrency mining. Thanks to the supply of cheap electricity, various reports estimate the share of Chinese miners in bitcoin network’s hashrate at between 65 and 70 percent. The country is home to some major mining companies, such as Bitmain, F2Pool, and Canaan.
The industry’s impressive statistics are reflected in Chinese entrepreneurs’ sentiments toward the technology. Seventy-three percent of China-based executives surveyed as part of Deloitte’s 2019 Global Blockchain Survey said that blockchain technology is a top-5 critical priority for the country, while 34 percent of the sample reported strongly believing in the technology’s disruptive potential.
Blockchain, not crypto
Chinese government’s apparent embrace of enterprise blockchains and controlled DLT-based solutions does not extend to truly decentralized use cases based on permissionless ledgers, most notably cryptocurrencies. Crypto trading and initial coin offerings, deemed too risky for retail investors, are outlawed since September 2017. There has been, however, significant trading activity on over-the-counter marketplaces that only allow the exchange of digital assets and not fiat money. November 2019 saw a wave of further restrictions that affected even crypto-only exchange platforms, as firms such as Bitsoda, Akdex, Biss, and Btuex were forced to cease domestic operations. Weibo accounts of a major exchange cryptocurrency Binance and blockchain platform Tron were suspended.
Just days prior to the latest crackdown, a number of Chinese financial authorities issued reminders for investors to mind the difference between blockchain and cryptocurrencies, and to be wary of the latter. The People’s Bank of China reaffirmed its position on all ICO-like funding schemes being illegal, and announced increased scrutiny of foreign-based crypto exchanges active in mainland China. Local financial authorities in Shanghai and Weihai warned citizens that cryptocurrency speculation was on the rise again following Beijing’s official endorsement of the underlying technology.
The Chinese government’s stern pro-blockchain, anti-crypto stance is only natural given the highly centralized character of the nation’s political system that seeks to harness technological innovation to preserve the existing level of concentration of political power. While emphasizing the technology’s instrumental capacities, Chinese leadership will ardently avoid any manifestations of the decentralizing ideas that fueled the rise of the original cryptocurrency movement.
Pioneering national digital currency
One of the reasons for the Chinese government’s staunch opposition to cryptocurrencies is the need to preserve its monopoly on digital money. The People’s Bank of China has reportedly been doing research on the potential of blockchain and digital currency since at least 2014, filing 63 blockchain patents along the way. As of the end of 2019, many industry experts are convinced that the country’s central bank is mere months away from issuing the digital version of yuan.
While the details of the project have been kept away from the public eye, it is evident that the move mirrors Facebook’s unsuccessful effort to clear regulatory hurdles and create a global, decentralized digital currency free of central bank control. Whereas Facebook’s Libra faced a severe regulatory backlash, this is not a concern to the Chinese state-backed project. Moving national currency to digital format will enable the Chinese authorities to meet a number of its strategic goals: from better controlling domestic money flows in the country’s sprawling digital economy to cementing China’s international influence by complementing the Belt and Road initiative with digital payments infrastructure.
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