How Will China Pursue Xi Jinping’s Blockchain Adoption Plan?

Published at: Nov. 6, 2019

After President Xi Jinping called to speed up the development of blockchain technology in the country on Oct. 24, blockchain-related news from China just keeps on coming as the country is seemingly eager to beat the United States (or any other country) in the race to implement blockchain initiatives. For this purpose, a special regulatory body has been created to monitor over 700 local decentralized projects, and any articles containing anti-blockchain statements are now banned.

Talking about blockchain is good!

The country’s authorities have studied the possibilities of distributed ledger technology for some time. However, at the beginning of last week, the blockchain policy in China took a more aggressive course. During a Politburo Standing Committee session, the head of state called on government institutions to immediately begin implementing a program to integrate blockchain into the country’s economy and its IT sector.

The ambitious program’s implementation began with restoring blockchain’s reputation. Any anti-blockchain statements are now banned in the country, with existing publications criticizing or calling the technology a scam being removed en masse last week.

Not long ago, the Chinese government’s stance on blockchain and cryptocurrencies wasn’t so positive. “Who still remember the days when posts promoting blockchain getting deleted real fast?” tweeted local blockchain and cryptocurrency news outlet cnLedger on Oct. 28. Additionally, the country’s most downloaded educational mobile app, Xuexi Qiangguo, has recently introduced a new course that is completely dedicated to blockchain and cryptocurrencies.

As reported by local news outlet Storm Media, the technology is being discussed in China mainly due to the government’s motive. As a result, the number of articles and TV programs promoting decentralized technology is growing rapidly. Over the past 30 days, the number of pages containing publications about “區塊鏈” (blockchain) in the Baidu search engine has more than doubled, from 34 to 76.

Since Oct. 25, WeChat users have been searching for blockchain 11.8 times more often. In just two days, the number of relevant searches increased from 777,000 to 9.2 million.

Research

The People’s Bank of China began exploring the possibilities of digital currencies and DLT back in 2014. Three years later, in 2017, its representatives announced that they would pay special attention to blockchain as part of a five-year development plan. Musheer Ahmed, managing director at FinStep Asia — an advisory firm assisting fintech startups — told Cointelegraph:

“The development of innovative technologies has been an important part of Chinese Government Policy to take the country forward into industry 4.0 era. We saw the same when it came to the development of mobile internet and, in particular, Artificial Intelligence and IoT.”

A week ago, during a meeting with Communist Party of China officials, President Xi urged the country’s ministries and companies to allocate even more resources to the study of blockchain technology. He emphasized, “Greater effort should be made to strengthen basic research and boost innovation capacity to help China gain an edge in the theoretical, innovative and industrial aspects of this emerging field.”

The ambitious plans are supported by existing programs: In October last year, China launched the first pilot blockchain development zone. Based in the Hainan Resort Software Community, the zone was created in collaboration with the Oxford University Blockchain Research Center. Wang Jing, head of Hainan’s provincial department of industry and information technology, said at the time:

“The pilot zone will commit to attracting blockchain talent around the world and exploring the application of blockchain in areas such as cross-border trade, inclusive finance and credit rating.”

She added that the pilot zone will cooperate with the world’s leading research institutes and major players in the blockchain industry. According to the Communist Party of China Central Committee, there are presently 83 blockchain research institutes in the country.

Overall, research across Chinese universities in blockchain is at a prolific level, according to professor Olinga Taeed, council member and expert advisor at China E-Commerce Blockchain Committee. He told Cointelegraph:

“CCEG has a 5 year agreement with then Centre for Cyber Security at the University of Electronic Science and Technology of China in Chengdu (UESTC). When I visited them in September 2017 they already had over 40 PhD students working on blockchain; you have to compare this to the rest of the world where you will be lucky at most to have 3–5 at a university more than two years later.”

Investments

China is seeking to introduce blockchain in a variety of areas, doubling the volume of investments to $3 billion since the second quarter of 2018.

Last year, various funds were allocated to the blockchain industry by Chinese government agencies, totaling 40 billion yuan ($5.8 billion). Funds financed by individual cities and provinces such as Hangzhou, Nanjing, Beijing, Shanghai, Shenzhen, Xi'an and others are especially active. On Oct. 30, Cointelegraph reported on the Guangzhou government’s plans to launch a $140 million subsidy fund to encourage the development of blockchain initiatives.

Regulation

The ambitious goals set by Beijing to create a blockchain industry ecosystem in the country require strengthening leadership and the work of regulatory bodies, as stated by the Secretary General of the CPC. Meanwhile, an entity to meet this requirement is already actively functioning in the country.

To date, the Chinese Cyberspace Administration — the structure governing the activities of local blockchain projects — has checked and approved over 506 organizations. This list includes the largest Chinese state-owned banks, IT corporations as well as many state and commercial projects that determine the face of today’s Chinese economy.

It should go without saying that the face should be impeccable, according to the CPC, which calls on blockchain companies to “remain rational.” The orders from above are being successfully carried out, as the Shanghai Stock Exchange asked blockchain-related projects at the end of October to make statements based on facts and refrain from creating hype.

Meanwhile, the creation of these standards is entrusted to the Research Institute of Electronic Industry Standards under the Chinese Ministry of Industry and Information Technology.

The widespread adoption of these standards is expected to occur before the end of the year and will allegedly include basic and business standards for processes and methods, compatibility and information security.

At the same time, ready-made fintech products will undergo mandatory certification. For this purpose, the People’s Bank of China has created a special department called Certification of Fintech Products. Cointelegraph reported that China plans to certify 11 types of equipment and software for financial technology that facilitate digital payments and blockchain services. According to the bank’s representatives, the issued certificates will be reviewed and updated every three years.

Development

When it comes to the development of blockchain solutions, China’s plans are wide and varied. The work is in full swing, especially after the recent speech made by the president. Everybody is busy — from the administration itself, in a hurry to issue a central bank national digital currency while checking the loyalty of officials through a new decentralized application, to large corporations.

According to the China Electronic Information Industry Development report, the number of blockchain patents filed in the country reached 3,547 in the first half of 2019, exceeding the total number of patents for the full year of 2018.

One of these companies, FUZAMEI Technology, told Cointelegraph it has applied for more than 300 blockchain patents, 295 of which have been published, and eight have been authorized. Danruo Huang, the company’s overseas market development manager, said, “From our perspective, intellectual property protection and continuous innovation of technology are fundamental to future development.”

Meanwhile, the total number of blockchain projects in the country counts over 700. The list includes representatives from various industries, including tourism, education, e-commerce, law, healthcare and supply chains. Among the latter are blockchain solutions HiCloud and AliCloud developed by technology corporations Huawei and Alibaba, respectively.

Baidu, the Chinese online search giant, has also made its appearance by patenting its own “Super Chain” blockchain for developing the fundamental infrastructure for the provision of blockchain services.

The list also includes financial sector giants such as Industrial and Commercial Bank of China and Ping An Bank, both of which have registered as many as two blockchain projects each. Another major state-owned bank, China Merchants Bank International, is using the public blockchain Nervos to create fintech applications for retail and institutional clients.

Along with commercial enterprises, government agencies are also represented, including the State Currency Office with its cross-border blockchain platform for business representatives and the Hangzhou Internet Notary Service.

Beijing is actively attracting IT companies to integrate blockchain technology into the administrative sphere and the public sector. It is known, for example, that the American company ConsenSys is creating an application for renting real estate in Xiongan New Area.

Meanwhile, the administration of Shenzhen city has entered into an agreement with Tencent, a Chinese tech company, to open an entire Intellect Tax laboratory. Its employees will use blockchain to track how citizens pay taxes.

Add to that the recent investment of Wanxiang, one of China’s largest automotive giants, of almost $30 billion in a new blockchain startup involved in creating a blockchain-powered “smart city” that is able to track citizens’ data. “Innova City” is set to become China’s “largest, most interconnected, blockchain-powered smart city.”

Real-world use?

Does China demonstrate the same level of efficiency when it comes to functional blockchain solutions? It seems that the country is succeeding here too. It’s not just mining corporations and cryptocurrency exchanges where China is an undisputed global leader, but also in the practical application of decentralized technology within institutional structures.

The most vivid example is the Beijing Internet court, which was created in 2018 and has since examined 14,904 cases with the help of blockchain. The organization’s president, Zhang Wen, said that in 40 out of 41 cases, the parties preferred to settle the matter in court using evidence validated by blockchain.

Zhang also noted that the court has used blockchain in 58 cases to collect and provide evidence during trials. In another city, Hangzhou, the internet court uses blockchain to combat plagiarism, and the country’s Supreme Court has even recognized the legal force of evidence based on blockchain.

In the logistics field, the VeChain blockchain system is actively used to validate the quality of goods. In mid-October 2019, it began to be used for tracking beef imported from Australia and identifying counterfeit meat products.

Through the new service, each piece of beef is placed in a vacuum-sealed package marked with a unique QR code, which allows the transportation process to be tracked from the slaughterhouse in Australia to stores in China. Suppliers, sellers and consumers can check the origin of the meat by scanning the code using a smartphone at any time. The code works with VeChain Pro, WeChat and Alipay applications, and makes it impossible to fake or forge any records in the blockchain system.

Blockchain has also seen widespread use in the field of mobile payments in China. This is not surprising, given that 425 million Chinese people use phones as electronic wallets, and the mobile payment market has already reached $5.5 trillion. One can now pay for a product with a smartphone at almost any vegetable market by simply scanning the QR code marked on an electronic scale. Tencent’s messenger, used by 500 million Chinese people, has its own TrustSQL blockchain platform to make mobile payments safer. Regarding this, Ahmed told Cointelegraph:

“The technology has been in use to varying degrees in Mainland China for the last few years. We have seen the big TechFins/Tech giants using blockchain for payments, like Alipay for remittance, as well as for their operations. In some instances, blockchain has been used by tax bureau to issue tax invoices in Shenzhen.”

The forecast for the next two years

Meng Liu, an analyst at Forrester, believes that there will be a significant increase in enterprise blockchain projects in the next year or two, most of which will be owned or financed by government organizations. At the same time, according to Meng, banking will stand at the forefront of China’s blockchain industry:

“In his speech, President Xi has highlighted a few use cases for blockchain such as small-to-medium enterprise (SME) lending, banking risk management, and compliance. The instructions from China’s top leadership will push the digital transformation process of megabanks’ back-office operations and improve their operational efficiency.”

Speaking about the role of financial entities involved in China’s blockchain adoption plan, many experts referred to the country’s national cryptocurrency planned for issue by the People’s Bank of China as part of its Digital Currency Electronic Payment system intended for use in the near future.

Xin Wang, CTO at Huaxin Blockchain, told Cointelegraph that the DCEP system can be publicly released within a year. He also added that Alipay and WeChat pay have already set up an infrastructure for the project. Xin went on:

“Blockchain will act as a complementary strategy for data safety and audit. The government will start to adopt this technology in the government IT system to provide better service to public. The areas may include: digital certificate, copyright, proof of asset, etc…”

As for a key region where the blockchain is likely to flourish, Meng named Shenzhen, explaining that China’s government is seeking to turn the city into a “hub of innovation, entrepreneurship, and creativity with international influence. It also fosters plenty of leading tech and fintech giants such as Ping An Group, China Merchants Bank, WeBank, Tencent and Huawei,” the analyst added.

Further development of blockchain technology in the country will most likely be facilitated through state-controlled chains. Dr. Paul Sin, leader of FinTech Practice and Asia Pacific Blockchain Lab, said in a conversation with Cointelegraph:

“DLT or permissioned blockchain has a key difference from public blockchains used by cryptocurrency, i.e. only permissioned named users can join the network (vs. crypto users are often anonymous). While crypto allows money laundry, breaches of currency control, illegal fund raising, etc., DLT enables traceability and auditability. Hence China government has been and will continue to support DLT.”