Three trends that will lead China to become a blockchain superpower
Blockchain technology is well-known for its biggest advantage — disintermediation, which is the core value of blockchain that enables a database to be directly shared without a central administrator; moreover, once recorded in a blockchain-based ledger, data is hard to tamper with. One country that is pushing hard on blockchain development and aim to implement the “transformation” thoroughly is, unsurprisingly, China. As a worldwide leader of annual blockchain patent filings, China obviously values and supports the technology, despite its concerns about the anonymity of cryptocurrency that lead to a complete ban of bitcoin and other virtual currencies. So far, “a complete value chain for the blockchain sector has emerged in China, ranging from hardware manufacturing, platform and security, to application services, investment, media and human resources”, according to the white paper released by the Information Center with the Chinese Ministry of Industry and Information Technology. Below I listed three trends you must know about China’s development of blockchain technology, along with interesting actions taken by the government.
Trend 1: Optimism on the Rise
With the recent increasing popularity of blockchain technology, more and more companies in various industries join the trend of applying this new technology. According to data gathered by the South China Morning Post (SCMP), which details the evolution of China participating in the global blockchain trend, ‘more than 4,000 blockchain companies has now registered in China.’ Furthermore, the number of blockchain companies in China has grown over six times now compare to it was at the same time last year. This statistic is based on companies which include the word “blockchain” in their name.
The growing number of blockchain companies implies encouraging news for the Chinese government, leading the government to take a supportive stance towards such companies. In addition, such figure now outpaces that of both the USA and the UK. Although the Chinese government had been taking a negative attitude towards the unregulated cryptocurrencies over the last two years, it seems that now the Chinese private sector is turning into a front runner in the blockchain development race.
Trend 2 : From National Support to Local Arm Races
In October 2016, the Chinese national government first published a white paper that illustrates their support and optimism on blockchain, and discussed its potential applications. As a result of the support in the national level, local governments have begun launching a Blockchain arms race. Recently in April 2018, Xiongan Global Blockchain Innovation Fund, a fund launched by a Hangzhou-based venture capital firm called Tunlan Investment, announced that they have $1.6 billion available for startup investments. Around 30% of the money came from the Hangzhou government. According to a report by South China Morning Post, Shenzhen also has a new government-backed fund to support blockchain development. The total fund is worth around US$ 79.4 million, and 40% of it comes from the local government. It is also mentioned in the same report that Beijing is going to launch a blockchain fund for their new Xiongan New Area economic zone. The purpose of this zone is to utilize technology such as blockchain and cognitive computing to transform the area into a ‘smart city’. The specific details of this fund is yet to be disclosed.
Now that the major cities have taken the initiative in echoing national support for blockchain, it is likely that other cities will follow suit. According to Chinese media reports, at least 9 provinces have already published official papers showing their support of Blockchain. In the next few years, it is widely expected that more government-based funds will be put into action. The arm race between local governments will provide a great monetary stimulation for the industry. With sufficient capital support, we can expect to see more proof of concept coming from China soon.
Trend 3: Copycat or Innovator?
To predict the future development of blockchain in China, it is reasonable to look at how other technology evolved in the Chinese market throughout the years. It is worth noticing that Chinese companies does not have a good reputation in innovation, but rather a established track record of copying existing products. (Take a look at Xiaomi’s brick and mortar stores. For a second you might mistake it as an Apple store.) In many instances, a Chinese company would copy the technology of foreign firms and capture the domestic market. This phenomenon is also boosted by government influence. Take search engines for example, Baidu started out two years after Google and utilized similar ideas and technology at first, but sealed its dominance in China by allowing censorship to appease the concerns of information control by the government. However, Baidu also adjusted itself to be better suited for the Chinese market, such as integrating with Chinese social media platforms and improving search efficiency for Chinese characters. An article from the New York Times documented the rise of Baidu over Google, and we can imagine that the development of blockchain companies might follow a similar trend.
In fact, it probably is happening already. According to a report by BuzzFeed news, a US based blockchain storage and cryptocurrency platform named Filecoin, just claimed that Tron, a similar platform created by a Chinese entrepreneur, has copied large chunks of their white paper with “zero references”. This may well be an alarming indication of how Chinese companies would act in the future. The nation will likely come up with their own version of Bitcoin, perhaps with a loophole for the government to censor all transactions.
Therefore, I believe that the future of blockchain in China would hinge on a delicate balance of copying and innovation. Copying ‘brilliant’ ideas seems to be in the veins of Chinese firms, but the strong support from the government and large capital inflow would also trigger some true innovation. It is likely that copying and innovating would become a spiral of growth for blockchain technology, and the industry would continue to expand. However, whether blockchain firms will become more localised like Baidu has become in the search engine world, or fight their way outside of China and become global leaders, is yet to be determined.
The Conclusion: A Brand New Economic World?
The Chinese market has always been an interesting topic in any business discussion during the recent years. It is no different for blockchain. Despite regulatory hostility against cryptocurrency, figures and actions show that China is definitely embracing the change brought forth by blockchain in its own way. Spectators and industry practitioners alike should buckle up for an exciting ride in the next five to ten years, as blockchain technology, led by China, may well revolutionise the world. The financial industry would only be a starting point. The following table is from a survey by PwC China on Chinese companies, and it illustrates that there is optimism for Blockchain within various non-financial industries. It is possible that how China performs in blockchain would determine its status in the global economic hierarchy. If the Chinese do take a strong lead in blockchain innovation rather than just copying existing technology, it may be the pivotal step for China to overtake the US and EU as the new economic superpower.
