Propaganda poster for Hainan Island’s blockchain free-trade zone.
A version of this article was originally published by KapronAsia, a Shanghai- and Singapore-based fintech consultancy.
Much like its anti-corruption campaign, China’s crypto crackdown is relentless. Beijing views decentralized digital currency as a conduit for money laundering and capital flight. In contrast, Beijing sees crypto’s underlying blockchain technology as useful. Blockchain can help China boost its tech prowess, improve supply-chain integrity, and surmount bottlenecks across many industries, particularly financial services.
The key is to centralize blockchain, whether by having the People’s Bank of China create a digital fiat currency — reportedly well underway — or by supporting the private sector to implement blockchain solutions in line with Beijing’s directives. Embracing contradictions is necessary here, as is the case with China’s “socialist market economy.”
In October, Chinese President Xí Jìnpíng 习近平 signaled Beijing’s support for blockchain. According to state media, Xi urged “deep integration of blockchain with the real economy,” which he said could help small- and medium-sized enterprises (SMEs) better access credit, enhance risk management in banking, and more effectively supervise government agencies. Xi added that China has a “solid blockchain foundation” and called for the nation to accelerate the development of blockchain technology and strengthen related basic research.
Chinese investors reacted exuberantly to the publication of Xi’s remarks about blockchain. Stocks of nearly 200 companies that invest in blockchain technology jumped around 8% on October 28, the first trading day after Xi’s remarks were made public. Some rapidly hit their daily maximum increase of 10%.
Blockchain’s potential to boost transparency could aid Xi’s anti-corruption campaign. China has long struggled with falsification of official data at the local level. Of course, ensuring that local governments whose interest is to meet quotas and targets will actually implement technology that could increase their vulnerability is another story.
From March to mid-December, 500 blockchain projects were registered with the Cyber Administration of China. Some strategic investors in the projects include Chinese tech giants like Alibaba, Tencent, and Huawei.
Hainan Province, home to China’s first blockchain free-trade zone (FTZ), announced in December that it would use a special fund of 1 billion yuan ($142 million) to finance blockchain firms. Hainan aims to deploy blockchain in trade, tourism, healthcare, and housing, according to state media.
As the state coffers open, China must take care to distribute funding for blockchain initiatives prudently. Knowledge of distributed ledger technology among China’s local governments is limited. Given the hype around the technology, there is a definite risk that state funds intended to support blockchain projects will not be optimized.
Cryptocurrency: 加密货币 jiāmì huòbì
Blockchain: 区块链 qū kuài liàn
Bitcoin: 比特币 bǐtè bì