‘Forward-looking’ Chinese government makes the industry attractive to investors
(SONG CHEN / CHINA DAILY)
China’s blockchain market is becoming more attractive than ever to foreign investors, with the industry receiving a concerted boost from the central government.
Though China has implemented regulations in recent years to ban technologies like initial coin offerings and cryptocurrency exchanges, its support for blockchain, as well as artificial intelligence, was highlighted in the 13th Five-Year Plan (2016-20) for national development.
And in October, President Xi Jinping emphasized blockchain as a core technology in the new round of technological innovation and industrial transformation.
“China is a big global player … and there is an opportunity for China to become leader, even from a technology perspective, to create new initiatives and actually lead the rest of the world,” said Yuval Rooz, cofounder and CEO of New York-based blockchain startup Digital Asset. “For companies like us, this is extremely exciting.
“The nice thing about China is that once a decision is made, it is actually easier to move forward,” said Rooz.
Blockchain is a distributed ledger technology that allows transparent, unchangeable and traceable transactions from point to point without a middleman.
As of March, more than 5,800 companies in China had the word “blockchain” in their name, of which 4,586 companies were registered in 2018, according to Shenzhen-based information platform Interchain Pulse Research. Meanwhile, a total of 22 blockchain-related industrial zones had been established as of May 2019.
Global market intelligence firm IDC expected China’s spending on blockchain technology to exceed US$2 billion by 2023, with a compound growth rate of over 65 percent and the banking industry taking the biggest portion.
Jochen Biedermann, managing director of the World Alliance of International Financial Centers (WAIFC), an international nonprofit organization registered in Brussels, said Xi’s commitment shows the Chinese government is “forward-looking and embraces new technologies”.
Visitors learn about the future applications of the combination of 5G and blockchain technology at a recent industrial expo in Hangzhou, Zhejiang province. (LONG WEI / FOR CHINA DAILY)
Xi’s word also gives the industry a clear view of which sectors blockchain technology will have the most significant impact in, said Biedermann, who is also the founder and CEO of Hong Kong-based Blockchain Asia, a company working to connect the industry in Asia and Europe.
“For blockchain in China, this is not a start, but rather a confirmation of the sound development (of this technology) in China, which has lasted already for several years,” said Biedermann.
“The more sophisticated foreign investors are very active in China, scouting for talent and promising solutions with local teams, as information is not always easy to access from abroad, given the language barrier and different communication channels.”
In November, Digital Asset stepped up its presence in the Chinese mainland by partnering with Blockshine, a Shanghai-based blockchain services provider. The partnership focuses on the financial services industry.
Rooz said he expected Xi’s blockchain announcement to open up huge opportunities for the industry.
“When it comes to working in China, you really want to make sure that there is support from the government … Having that kind of announcement (from Xi) is extremely exciting,” he said.
Digital Asset has also been a partner with Hong Kong Exchanges and Clearing — operator of the Hong Kong stock exchange — since October 2018 to develop a blockchain-powered platform for northbound trading under Stock Connect, a mutual market access program linking equity markets in the special administrative region and the Chinese mainland.
Before Xi’s announcement in October last year, many local governments were very conservative regarding foreign blockchain companies, as they were unfamiliar with the technology and the changes it can bring to people’s lives, said Layla Dong, founder and CEO of Blockshine. The company provides blockchain consulting services and implements the technology for companies, organizations and governments in various countries.
Dong said she expected blockchain to become better recognized with government support, industry standards and continuous education.
Jochen Biedermann (left), managing director of the World Alliance of International Financial Centers. Olaf Carlson-Wee (right), founder and CEO of Polychain Capital. (PHOTO PROVIDED TO CHINA DAILY)
She added that one of the first projects the Digital Asset-Blockshine partnership will take on relates to cross-border blockchain services for a Chinese State-owned financial institution. She declined to name the institution.
Another international investor looking to the Chinese blockchain space is San Francisco-based hedge fund Polychain Capital. In October, the company was reported to have formed a strategic partnership with Nervos Network, a leading public blockchain project in China, following Polychain’s investment in 2018.
Olaf Carlson-Wee, founder and CEO of Polychain Capital, said great technologies have emerged from China in recent years, in both the deep tech and market infrastructure space.
“We plan to actively participate in the Nervos ecosystem, work with the founder to build out their community, and drive engagement to the project from blockchain investors and participants globally,” said Carlson-Wee, adding that he was impressed by Nervos’ developers.
WAIFC’s Biedermann said that Hong Kong and Singapore are often chosen as a bridgehead into Asia for European blockchain projects.
Hong Kong’s role will be important, especially with the Guangdong-Hong Kong-Macao Greater Bay Area framework, as foreign investors may have difficulty navigating the Chinese mainland market. The initiative will enhance the special administrative region’s connectivity with the mainland.
The blockchain industry in Shenzhen, often dubbed China’s “Silicon Valley”, could also be an excellent starting point for addressing the Chinese mainland market via Hong Kong, said Biedermann.
However, blockchain technology still faces major challenges, Carlson-Wee pointed out.
One of them, not just in China but globally, is the perception that the industry is still novel, nascent and “incredibly complex” while talent and technology remain spread across the world, making it difficult for more traditional investors to source and finalize quality investments within the ecosystem.
“Talking about blockchain has become hype, but only a minimal number of people understand the technology behind it and can judge whether it fits for a specific use case or not,” said Biedermann, noting the need to invest more in education.
In July, he became chairman of Tech 4 Blockchain, an education center supporting Chinese companies in using the technology, in Wuhan, Central China’s Hubei province.
More than 10 universities in China had launched blockchain courses as of December 2018, according to Blockdata, a Beijing-based market consultancy. In South China’s Hainan province, a blockchain research center was also set up in 2018 with the University College of Oxford’s Blockchain Research Centre to promote joint research in technology and talent cultivation.
Blockshine’s Dong said cooperation between the public and private sectors is needed if a technology wants to grow, as it cannot do so on its own. “So, governments and companies should work together to push this (technology) forward.”
Dong expects China’s Ministry of Industry and Information Technology to launch a new blockchain standard in mid-2020. She said an ecosystem with the right policies and standards will further support market growth and provide clear guidance for foreign companies.
For overseas blockchain companies and investors interested in the Chinese market, Biedermann said they must choose local partners carefully. He suggested that foreign companies find a local partner with a good track record of supporting international entrepreneurs and investors.
Biedermann said he has high expectations regarding the proposed digital currency electronic payment project by the People’s Bank of China, the country’s central bank, as it will be a key enabler for many blockchain-related applications.
“(With the digital currency) we might be able to fully automate all business interactions in a network of suppliers, manufacturers and their customers,” said Biedermann.
Digital Asset’s Rooz said he is optimistic about opportunities to come from the Belt and Road Initiative, as blockchain technology can make relevant projects more efficient.
“China is a big player in trade and commerce. Collateral management across borders is something that I think is very exciting for blockchain,” said Rooz.
Polychain’s Carlson-Wee said he hoped to see other world leaders and governments follow suit in embracing the technology so that the value it creates can be shared across the globe.
“We hope to continue to work with our network of investors and technologists in the area,” he said.
