China's government is chasing blockchain technology while crushing cryptocurrencies. A new report from Abacus, 500 Startups, and the South China Morning Post documents the contradiction. Six major ci
China's government is chasing blockchain technology while crushing cryptocurrencies. A new report from Abacus, 500 Startups, and the South China Morning Post documents the contradiction.
Six major cities—Shanghai, Shanxi, Henan, Guangzhou, Guiyang, and Hangzhou—have rolled out blockchain policies. Shenzhen and Hangzhou took additional steps, each establishing dedicated funds. Shenzhen committed 500 million yuan, or $79 million. Hangzhou allocated 10 billion yuan, or $1.6 billion, for blockchain investment. Officials in Hangzhou say theirs is the world's largest such fund.
The Xiong'an New Area, an economic zone initiated on Xi Jinping's directive, plans to use blockchain alongside cognitive computing as part of a smart-city transformation. In Hong Kong, the Global Trade Connectivity Network, a blockchain infrastructure project jointly developed by the Hong Kong Monetary Authority and Singapore's Monetary Authority, entered its tendering phase in February. The system aims to digitize trade and trade finance between the two cities, with expansion planned across the region and internationally.
Alibaba teamed with Changzhou in August 2017 to deploy China's first blockchain application in medical services. Tencent partnered with the China Federation of Logistics and Purchasing in March 2018 to build platforms using its TrustSQL blockchain, covering e-waybill services, transportation management, and warehouse operations.
The funding landscape reveals dominance. Bitmain has raised $450 million as of June 2018, the country's most-funded blockchain company. Hyperchain follows with $230 million, and Canaan with $47 million. Among China's most active investors, Fenbushi Capital has backed TenX, Zcash, Abra, Circle, and Factom. Qianfang Capital invested in Vechain, IOTA, and Tezos. INBlockchain backed Qtum and WanChain.
The government's crypto crackdown tells another story. Last September, authorities ordered all cryptocurrency exchanges shut and declared all initial coin offerings illegal. That began an official campaign that forced bitcoin traders to leave. In January, the People's Bank of China instructed financial institutions to cease funding cryptocurrency-related activities. By February, the government blocked access to overseas crypto and ICO websites.
The effort succeeded. Chinese yuan trading represented more than 90 percent of global bitcoin transactions before the ban. Now it accounts for less than 1 percent. Since September, regulators closed 88 cryptocurrency exchanges and 85 ICOs, according to Xinhua News Agency.
Guo Dazhi, research director at the Zhongguancun Internet Finance Institute, told the Global Times the policy worked. "This indicates that the policy has been very successful," he said. "It is within expectations that the yuan's share in global Bitcoin transactions would drop after China announced the ban."
The 2018 China Internet Report, released Tuesday at the RISE conference in Hong Kong, examines 12 sectors including blockchain, fintech, e-commerce, and artificial intelligence. It underscores how government policy shapes China's technology industry, charts how the 'Big Three' Internet giants—Baidu, Alibaba, and Tencent—dominate nearly every major tech sector through investment and internal projects, and measures the scale of China's Internet economy. China has 772 million Internet users, nearly three times the United States figure, with Internet penetration at 55 percent compared to 89 percent in the US, leaving substantial room for growth.
