Introduction to Blockchain in China
Blockchain technology was first introduced to the world with the publication of Bitcoin: A Peer-to-Peer Electronic Cash System by Satoshi Nakamoto in October 2008. The rapid rise in Bitcoin’s price and trading volume in 2013 caught the attention of the Chinese government, leading to regulations being introduced to strengthen supervision and address financial risks. The Chinese government differentiated between cryptocurrencies and blockchain technology, regulating the former strictly and encouraging the development of the latter.
Recognition and Support for Blockchain Technology
The Chinese government and public have come to recognize the value of blockchain technology, and in 2016, the Ministry of Industry and Information Technology released a whitepaper outlining the development and applications of blockchain both domestically and internationally. The State Council of China also included blockchain technology in the 13th Five-Year National Informatization Plan, marking the start of official promotion of blockchain development.
Strengthening Regulations and Encouraging Innovation
Despite the increasing popularity of Initial Coin Offerings (ICOs), the Chinese government has strengthened regulations to address risks such as fraud and illegal fundraising. However, they continue to actively support the innovation and application of blockchain technology, with local governments promoting its development and experimentation. The favorable policy environment has led to a wave of innovation and entrepreneurship in the industry, with major enterprises and institutions carrying out their own blockchain initiatives and projects.
Overview of China’s Blockchain Policy
China’s central bank (PBOC) has a tight control over the spread of cryptocurrencies in the country due to their potential to bypass capital controls. Bitcoin, for example, is considered a virtual asset and is not considered a currency by PBOC, making it illegal to use as currency or collateral in the Chinese market. Additionally, all forms of capital raising activities through cryptocurrencies, such as ICOs and STOs, are banned in China due to potential financial crimes such as illegal issuance of tokens, financial fraud, and pyramid schemes.
PBOC’s Own Digital Currency
Despite the restrictions on cryptocurrencies, PBOC has started exploring the possibility of launching its own digital currency to reduce the costs of traditional paper money circulation and increase policymakers’ control over the money supply. According to a deputy director at PBOC’s payments department, the central bank is «almost ready» to issue the country’s sovereign digital currency.
China’s first cryptography law became effective on January 1, 2020. The law aims to promote the stable and secure development of cryptography and improve China’s cybersecurity systems. It classifies cryptography into core, common, and commercial cryptography, with core and common cryptography used to protect national secrets and governed by strict cryptography authorities. The law also seeks to guarantee the information security of citizens, enterprises, and organizations.
Blockchain Regulation in China
China’s regulation of blockchain finance mainly uses administrative measures and applies a command-based regulatory model with a strict one-size-fits-all approach. However, in areas outside of finance, relevant specialized laws are lacking but the country is taking a positive attitude towards accelerating the implementation of blockchain technology applications.
Applications of Blockchain Technology: A Review»
In recent years, the implementation of blockchain technology has seen successful adoption across various industries in China. In this section, we highlight several successful and noteworthy blockchain application cases in selected industries.
According to CCID Consulting, the majority of blockchain applications in China concentrate on financial services and enterprise services. Specifically, blockchain applications in the financial sector mainly cover areas such as cross-border payments, insurance claims, securities trading, and bills.
Blockchain Application Cases in the Agriculture Industry
- Walmart’s Blockchain-based Food Safety Initiative: Walmart Food Safety Collaboration Center located in Beijing promotes and fosters collaboration between Chinese universities, associations, and government to improve food safety. In September 2016, Walmart Center, IBM, and Tsinghua University launched a pilot project using blockchain technology to enhance the traceability of the food supply chain, aiming to create a technological breakthrough for China’s food safety supervision. Walmart, IBM, and Tsinghua University first targeted pork products for their blockchain experiment in China.
- In June 2019, Walmart China partnered with VeChain and PwC to launch the “Walmart China Blockchain Traceability Platform”, which already has 23 product lines tested and listed. According to Walmart China’s press release, they expect fresh meat products tracked on the platform to account for 50% of its total sales in that category by the end of 2020. Further, blockchain-tracked products are expected to account for 40% of total vegetable sales and 12.5% of seafood sales by the end of 2020.
- Problems Targeted by Blockchain: The food system in China and the rest of the world is becoming increasingly complex due to the trend of miniaturization and localization of food production. For example, data about a pig farmer sending meat to a processing plant was previously recorded on paper at every step, and tracing the origin of food purchased could take days. With blockchain technology, the answer can be obtained in seconds.
- Full-process Traceability Empowered by Blockchain: The blockchain-based food supply chain cooperation model enables all participants to share transaction records through a digital platform that protects private information using advanced cryptography technology and encryption mechanisms. When information is obtained using blockchain technology, it can not only include tracing information but also provide additional information such as production time, temperature, food safety certification, and organic production. This has positively impacted the establishment of safer, more economical, and sustainable food systems.
- Example of a Blockchain-based Food Product Traceability System: In a blockchain solution for food product traceability, every box of packed pork will have a unique QR code, and all necessary product details will be uploaded to the blockchain platform through this QR code. Any authorized user can access trusted information to confirm the operational details of any node in the system. As an example, a supplier delivering goods to the Walmart distribution center creates a shipping record and enters the truck number, scans the QR code of the pallet to be loaded onto the truck, and the system displays the distribution center and the corresponding purchase order. The supplier only needs to upload pictures of the shipping orders and receipts to the blockchain to create a tamper-proof digital file for authorized users to log in and read instantly.
Blockchain Application Cases in Supply Chain Finance
- Ant Blockchain: Ant Blockchain, a subsidiary of Ant Financial which is part of the Alibaba Group, launched a blockchain-based supply chain finance platform in January 2019. With accounts payable as the credit voucher, the blockchain allows for the transparent transfer of SMEs’ credit information among banks, guarantors, and companies in the supply chain, reducing financial risk. The platform has provided financing services to 78 million SMEs in the country. The platform also puts various business processes, such as account receivable confirmation, circulation, financing, and liquidation, on the blockchain, with the confirmation and circulation of assets recorded on the blockchain instead of a simple business certificate.
- Wanxiang Blockchain: Wanxiang Blockchain, a subsidiary of China Wanxiang Holdings, partnered with Jiangxi Bank and Zhengbang Group to develop a blockchain-based supply chain finance solution that reflects transactions in a supply chain relationship by connecting financial institutions, core enterprises, and suppliers at all levels on the blockchain. The solution leverages proven transactions in these businesses to address the credibility issue preventing financial institutions from lending to businesses in need of credit. By the end of 2019, the service had already provided loans to SMEs worth over 300 million yuan.
Blockchain Application Cases in Logistics
- Tencent Blockchain: Tencent has developed a blockchain-based waybill system that can broadcast order information, transportation location, receipt address, and other data to various parties involved in the logistics process such as entrusting party, main contractor, carriers, regulatory authority, and banks. This helps coordinate the whole logistics process and records real-operation data in a tamper-resistant and transparent manner to assist logistics contractors in financing. The system reduces financial costs and simplifies the logistics process by providing funding parties complete monitoring and guarantee of capital return.
- Wanxiang Blockchain: Logistics Union Chain is a blockchain-based service platform developed by Wanxiang Blockchain, BAIC CCL, and DBS for the automotive logistics industry. The platform integrates logistics, settlements, and supply chain finance and has proven to be an efficient solution for the industry. The application of electronic orders, waybills, and online reconciliation reduces operational and transaction costs and enables small and medium carriers to explore better financing options with financial institutions. The see-through business model also leads to a more compliant and healthy industry.
Introduction of Top Chinese Universities Involved in Blockchain
|Tsinghua University||A major research university in Beijing and a member of the C9 League of Chinese universities. Established in 1911, it has produced many Chinese leaders in various fields.|
|Peking University||A major research university in Beijing and a member of the C9 League. Founded in 1898, it is the first modern national university in China and has educated many prominent Chinese figures.|
|Fudan University||A prestigious and selective university in Shanghai, founded in 1905 by renowned educator Ma Xiangbo.|
|Shanghai Jiao Tong University||A major research university in Shanghai established in 1896. Known as «The MIT of the East,» it is one of the oldest and most prestigious universities in China.|
|Tongji University||A comprehensive university located in Shanghai, founded in 1907 by the German government and German physicians. One of the oldest and most prestigious universities in China.|
|Zhejiang University||An elite C9 League university in Hangzhou, established in 1897. One of China’s oldest, most selective, and prestigious institutions of higher education.|
|Renmin University of China||An elite research university in Haidian District of Beijing, founded by the Communist Party of China. Classified as a Class A university under the Double First-Class University Plan.|
|Central University of Finance and Economics||A national key university, founded by the China Central Government and now under the Ministry of Education of China. Offers subjects in economics, management, law, literature, philosophy, science, engineering, pedagogy, and art.|
|Beijing University of Posts and Telecommunications||A key national university known for teaching and research in cable communications, wireless communications, computer, and electronic engineering. One of the top engineering schools in China.|
|Beihang University||A major public research university in Beijing emphasizing engineering, technology, and the hard sciences. Previously known as Beijing University of Aeronautics and Astronautics.|
|Xidian University||A public research university in Xi’an, administered by the Ministry of Education of China. Focuses on electronics and information education and research and offers programs in engineering, science, management, economics, liberal arts, and social sciences. A Double First-Class Discipline University with highly ranked programs in electronic engineering and computer science.|