Claude Huang contributed to this story.
China is racing ahead with blockchain-related projects in a bid to reshape its digital infrastructure, but without the tokens that are core to crypto-related projects in the rest of the world.
The most prominent, and best known to the international financial community, is its digital yuan. The eRMB is not based on distributed-ledger technology: it is controlled by the People’s Republic of China. But it is designed to operate on DLT rails, especially in the international arena.
In development since 2014 and with trials ongoing since 2020, China is far ahead of other nations in experimenting with a central-bank digital currency. As of the end of June 2023, eRMB transactions reached Rmb1.8 trillion, mainly for retail payments.
The People’s Bank of China says there are now Rmb16.5 billion worth of digital renminbi in circulation across 120 million wallets. That’s still a tiny amount, representing only 0.16 percent of China’s M0 money supply (M0 refers to cash and coins). But it is demonstrating a much higher velocity than paper money, supporting bigger transactions and circulating more quickly.
The eRMB is designed to tighten state control over China’s immature financial system and wrest power from Tencent and Alibaba, which pioneered and dominate electronic payments. It is also a tool to displace international payments in US dollars.
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China is allowing its territory of Hong Kong to experiment with crypto and token-based models, along international lines. It’s a simple way to disrupt dollar dominance while allowing Hong Kong to retain its role as an international financial center.
But the crypto activities in Hong Kong are strictly prohibited in mainland China. Decentralization flies in the face of state and Party control. From 2013, China began to restrict cryptocurrencies, culminating in blanket bans in 2021.
Blockchain – minus the token – has been a priority, however, ever since President Xi Jinping extolled blockchain’s virtues in a 2019 speech. Two years later, the technology was officially added to the state’s economic Five-Year Plan. Most provinces and cities, as well as tech and industrial enterprises, have launched projects. More than 1,800 companies calling themselves blockchain firms are registered with the Cyberspace Administration of China.
While it is likely many of these are more politically expedient than truly effective or innovative, the sheer scale of projects means some portion is going to become important. According to IPR Daily, a Beijing-based media covering intellectual property rights, Chinese companies represent about 70 percent of the world’s blockchain patents.
Major ministries and regulators are encouraging blockchain-related developments. A common theme is how to make these hundreds of projects interoperate and become standardized.
- The People’s Bank of China issued a “Financial Technology Development Plan” in 2022 that focuses on developing DLT.
- The State Supervisory Commission of the Central Commission for Discipline Inspection has followed up with a report to create a supportive environment for a Chinese metaverse.
- The Ministry of Science and Technology has signed off on a National Blockchain Technology Innovation Center, which will pursue ways to use blockchain to underpin the digital economy.
- The China Academy of Information and Communication Research in Beijing announced a “Carbon-data Reliable Circulation” network, to centralize carbon-related data across enterprises.
- The State Information Center, a unit of the National Development and Reform Commission, in 2020 launched the Blockchain Services Network. This “blockchain-as-a-service” platform lets enterprises leverage third-party cloud networks to develop blockchain applications. BSN is working on an international version called Spartan Network, which is meant to interoperate with Ethereum and other international layer-1s.
- The Supreme People’s Procuratorate and the Ministry of Justice will jointly develop blockchain applications for the judiciary, including using smart contracts to verify court decisions. Courts have already begun to store evidence on blockchain for cases involving digital governance. The courts want to develop standards for evidentiary storage, filing, and management.
- The China Internet Finance Association is promoting its Lu Yu cross-chain protocol, to allow various blockchains to share data and transfer value. Lu Yu is touted as the country’s first open-course cross-chain protocol. ICBC, Bank of China, UnionPay and WeBank are among the financial institutions trying it out.
Province and City
There are hundreds of blockchain projects being promoted at the provincial and municipal level. Their proliferation partly explains the list of national initiatives above, which is meant to bring some sense to it all.
One big theme is the metaverse. Shanghai, Suzhou and Zhejiang Province have all announced schemes to support enterprises building metaverse capabilities, particularly those with an industrial application. Shanghai, for example, is promoting blockchain, eRMB and metaverse for automobile production, commodity trading, and e-commerce.
Beijing’s government is pushing for Web3 companies and public services, along with something in its Chaoyang business district called the “Dark Horse Digital Human Accelerator.” Stay tuned.
China’s technology and industrial companies are pushing their own blockchain projects. These include:
- Baidu has launched its Xirang metaverse infrastructure platform, to help developers build in this space. It is also exploring digital collections – although without the speculative element of tokens.
- ByteDance (the company behind TikTok) acquired PICO, a virtual-reality headset maker, and partnered with Qualcomm to develop metaversy capabilities in gaming and social media.
- Jingdong is trialing metaverse-like means to optimize logistics efficiency, such as through simulating warehouse design.
- Ant Group has made its AntBridge blockchain protocol open source.
- Huawei is building a holographic application called the River Map Cyberverse.
- Tencent has various VR and metaverse projects on the go for gaming and selling digital content services. Most notably WeBank (the digital bank of Tencent) is the biggest force behind another national attempt at a blockchain protocol, FISCO BCOS.