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China-centric Approach to Blockchain Building Up for Present, Future

Avatar Olusegun Ogundeji

New developments seem to support the view that China’s vision to globalize its currency in a digital form is taking shape while an ecosystem builds around the Chinese agenda to make blockchain its present and its future, the new China Blockchain Report by Forkast has suggested.

Blockchain is already playing a large role across China’s economy, it adds, and it will only continue regardless of whether an outsider sees it as unclear or not as long as Chinese enterprises embrace it and governments at all levels direct it be deployed in various use cases across industries  in both the public and private sectors.

While the momentum continues to build up, coupled with the speech by Chinese President Xi Jingpin which spurred a renewed interest in the blockchain space, the report emphasized that the proposed launch of a digital currency now formally known as the digital currency electronic payment (DCEP) is key.

“According to reports and the PBOC’s statements, the digital currency would replace M0, or the money in circulation, of which central banks generally have the most control. For China, this is important considering how private companies are digitizing currency through popular mobile payment platforms WeChat Pay and Alipay. A substantial portion of the payments that drive the consumer economy has shifted to these platforms, which means they have moved from M0 to M2, of which central banks have less control. While M2 includes M0 (in addition to M1, the amount of cash held in checking accounts), it largely refers to the funds and credit in commercial bank accounts — where WeChat Pay and Alipay currency is held.”

It points at the PBoC’s interest to have a firm handle on the broader economic cycle including the future of international transaction settlement to which Facebook’s proposed Libra has triggered a sense of urgency to get the DCEP operational.

Some member countries of China’s Belt and Road Initiative (BRI) programme which seeks to connect Asia with Africa and Europe via land and maritime networks have signed an agreement with Chinese digital asset exchange Huobi to cooperate in building the next generation of blockchain-based financial infrastructure. Indonesia, Uzbekistan, and Kazakhstan joined the alliance to develop and implement a national blockchain service infrastructure which spans across public networks, regions, and institutions, according to Xinhua.

Ethereum co-founder, Joseph Lubin, once sought to get the Chinese government to work with Ethereum  touting it as “the strongest of the blockchain technologies” for the BRI. But Ethereum is currently not a fit for the DCEP which will likely have elements of blockchain technology and still be centralized, it handles the less than 300,000 tps needed, and China’s Great Firewall (the government’s tool for blocking websites within the country) has reportedly blocked the most popular Ethereum blockchain explorer, Etherscan, for unclear reasons.

There is also the Hong Kong link to the growing ecosystem as a possible springboard to capturing opportunities within China particularly in emerging technologies. The central banks of both Hong Kong and Thailand, which have a working relationship with China, are reportedly working to explore blockchain-backed digital currencies to facilitate quicker payment in bilateral trade (worth US$19.6 bln in 2018). Their digital currencies, based on a two-tier issuing system,  is to speed up cross-border trade settlement  and a step forward in Project LionRock-Inthanon which  involves the issuance of a token to Hong Kong banks taking part in the pilot programme.

Startups in China, especially blockchain-based, may take the advantage to shape their business models for local use cases while non-Chinese projects stay out of China or conform to given standards.

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