A Friendly Climate for Innovation – China’s Blockchain Regulatory Environment

Healthcare, Technology, Financials Author: Shuhong Chenli Editor: Luke Sheehan Mar 03, 2020 05:30 PM (GMT+8)

The Chinese government has been paying attention to blockchain for a long time. The remark of President Xi Jinping in October 2019 was a pointer to the next phase. What development trends can we expect for 2020?

Image credit: Nick Fewings/Unsplash

This article is a part of EqualOcean's 'Blockchain, China's Story' report. Read more about it or download the sample and check out the contents.

As the used-to-be largest ‘mining’ center for Bitcoin and one of the world’s innovation hubs in blockchain technology, the Chinese blockchain industry has attracted the attention of policymakers since the very beginning of its lifespan in the country.

The regulatory environment of the blockchain industry in China is on two dimensions: 1. Impose strict control on token-related business, especially for financing activities; 2. Encourage the innovation of blockchain technology and the exploration of its real-world applications.

On the one hand, Chinese regulators started to react to the financial risk accompanied by the sharp inflation on digital tokens since 2013; they have been continuously strengthening supervision and improving the regulatory system since.

The People’s Bank of China (PBOC) – the national bank of the country – has stated that tokens cannot act as legal tender and Initial Coin Offerings (ICOs) are considered as illegal public financing activities.

Apart from this, the regulators have strengthened their supervisions on the token exchanges, to shut down the transactions between tokens and fiat currencies as well as tokens to tokens, and banned the platforms from providing pricing services and intermediary services for ICOs.

As China’s blockchain industry gradually moves towards standardization, which poses a feel-good climate for those players who are focusing on the ‘real business of blockchain,’ we expect that the industry in China is going to witness acceleration in its development.

On the other hand, the central government in China has always been keeping an interest in blockchain – the underlying technology of digital tokens – and continuously encourages the application and innovation of the technology in creating added-value for the real economy.

Especially after the ‘October 24 announcement,’ where President Xi Jinping put forward blockchain to become a focus of national innovation efforts, with more research and investment directed toward developing the technology.

We project that, as more financial and tech companies pay attention to the opportunities arising in the blockchain industry, the government departments and State-Owned Enterprises (SOEs) may start to consider the harmonization of their businesses with blockchain technology, and more investors shall step into the playground to seek good projects that participate in the real economy.

In particular, President Xi Jinping has noted that the issuance of Small and Medium Enterprise (SME) loans, risk management in banking and government supervision are the key scenarios wherein blockchain is expected to make its first breakthroughs. Therefore, we project those blockchain applications in supply chain finance and e-government to be the main areas to take notice of in 2020.