China goes all-in on blockchain

Chinese President Xi Jinping said China must make a “greater effort” to develop and apply blockchain technologies and gain an “edge over other major countries.”

The comments came just one day after Mark Zuckerberg appeared in front of the U.S. Congress to make the case for Libra. Zuckerberg argued, "China is moving quickly to launch a similar idea in the coming months. We can’t sit here and assume that because America is the leader today that it will always get to be the leader if we don’t innovate.”

With U.S. politicians divided on the best way to deal with the digital currency revolution, China appears ready to push ahead and leverage the opportunity to take the leading position in the emerging global blockchain race.

President Xi’s call for China to seize the "opportunity of blockchain" looks set to fling the country into a frenzy of development. Investments are being made, strategic initiatives put in place, and laws enacted that show the country’s commitment to the technology.

The speech last Friday described blockchain as an "important breakthrough," and called for guidance and regulations for applications ranging from financing businesses to supply chain management. In a country with such top-down rule, these words carry significant weight and are already setting an urgent pace of blockchain development.

Strategic pillar

Analysts from New York investment firm Maple Leaf Capital suggest that now that Xi has spoken it will be "political suicide for any scholars or government officials" to speak out against blockchain, meaning that it is likely to remain a "strategic pillar" of China’s development for the foreseeable future.

This sentiment was quickly reflected in the market. Both bitcoin and blockchain-related stocks soared as companies, universities, and governmental bodies signaled their intention to begin capitalizing on the technology.

The Cyberspace Administration of China revealed that over 500 projects are already in the works. These are in fields including trade finance, asset management, cross-border payments, and supply chain financing, and are mostly led by Baidu, TenCent, and Alibaba.

Chinese local government also has “massive blockchain initiatives” on the way, according to Chinese native Dovey Wan, and some of the country’s top universities have already begun rolling out blockchain courses.

One policy advisor in Sichuan province said that Bitcoin mining, which at one point was under threat of a ban in the country, should now be welcomed in the region.

More significant are the efforts of Chinese banks. China’s Merchant Bank is said to have invested in the crypto wallet platform BitPie — which has "the longest history and most users in China," and the Industrial and Commercial Bank of China (ICBC) has debuted a digital currency wallet.

Some commentators are dubious about what these efforts aim to achieve.

“All I can say is this to me is a sign of the beginning of the nationalization of bitcoin/cryptocurrency related infrastructure in the mainland," said Wan, adding that, “eventually, all things can be state-owned, or at least partially."

Su Zhu, chief executive at Singaporean investment firm Three Arrows Capital, takes a more dystopian view. He suggests the encrypted technology that underpins cryptocurrency could lead to a variation of Mao’s original vision — "communism with digital characteristics."

One suspicious unique blockchain-based application has already emerged.

According to a post on Saturday, Beijing-based blockchain company Lingzhu Technologies has developed a Dapp called “Original Intentions Onchain” which allows Communist Party members to pledge their allegiance to the party on an immutable, public blockchain. The phrase "original intentions" dates from Xi’s remarks at a CCP meeting in 2017, when the term was central to a campaign for party members to stay committed to the party.

Cryptography Law

Elsewhere, China’s digital yuan project, which aims to expand the influence of the central bank over both the domestic and international economy, is getting closer to fruition.

Just one day after Chinese President Xi Jinping made his speech, the National People’s Congress in China passed a cryptography law that will be made effective on January 1st, 2020.

This aims to create a standardized regulatory system, encourage the development of "commercial cryptography technologies," and increase control over cryptographic technology through the state agency — the China Office of State Cryptography Administration.

Along with supporting other blockchain projects, the law is also likely to lay the legal foundation for the rollout of the digital yuan.

When the digital currency is released — which could be sooner rather than later given how fast the country is moving — it will theoretically restore control over the yuan to the People’s Bank of China, taking the power away from cashless platforms AliPay and WeChat which currently dominate the payments arena.

It’s also possible that on the international stage, China will attempt to leverage the digital currency to weaken the status of the US dollar as the global reserve currency.