Despite Ditching Int'l Cryptocurrencies China Seeks Leadership in Blockchain

© AP Photo / Kin CheungA staff member from a travel agency displays a Bitcoin logo as they accept bitcoins for payment in Hong Kong Friday, Feb. 28, 2014, after the world's first bitcoin retail store opened in Hong Kong, despite the virtual currency facing much scrutiny.
A staff member from a travel agency displays a Bitcoin logo as they accept bitcoins for payment in Hong Kong Friday, Feb. 28, 2014, after the world's first bitcoin retail store opened in Hong Kong, despite the virtual currency facing much scrutiny. - Sputnik International
China is apparently striving to assume the leading role in introducing blockchain technologies into the real economy. The country’s Ministry of Industry and Information Technology (MIIT) has announced that the state blockchain standard will be worked out by 2019.

Despite banning cryptocurrency operations and ICOs in the country, the government seeks to promote the distributed ledger technology that underlies digital money.

The MIIT has released a whitepaper titled "Blockchain in Industries 2018," stating that by late March 2018, 450 blockchain companies were operating in China, essentially covering a wealth of spheres of the production chain – from equipment manufacturing and security to investments and human resource management.

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The blockchain is notably a distributed, fully encrypted database, which was first introduced to facilitate bitcoin operations. Because it works in real time, being updated simultaneously on all users’ computers, and thanks to its encryption facility, with every new data block being linked to the preceding one, this electronic database cannot be changed or faked.

China has been extensively suspicious about cryptocurrencies. Although the People’s Bank of China is working on a digital yuan project, the issuance of other cryptocurrencies is deemed illegal in the country.

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In China, such operations constitute illegal fundraising, to say the least. Nevertheless, the attitude to blockchain is, on the contrary, very favorable, with a special Banknote and Blockchain Research Center operating in the country. The MIIT has said that in the next three years China will see blockchain penetrate a wealth of economic sectors.

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Zheng Tingying, an expert with the China International Trust Investment Corporation, believes that the technology is promising primarily for the financial sphere:

"I think that blockchain will prompt huge progress in the financial sector in the first place. However, its adoption cost is still rather high, which means that not all companies in real sectors can afford to introduce it."

He went on to say that for finance it is most crucial that this technology promises to eradicate distrust between parties, as well as allows for transparency, openness and traceability.

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"So it is applicable in all those financial spheres, where mutual trust in essential."

He said that another sphere that may gladly adopt it is IT, namely artificial intelligence and other branches involving advanced information technologies.

"Later on blockchain will be adopted by the traditional industrial sector, that is assembling, construction, etc."

Blockchain and smart contracts contribute to the transparency of business operations. For instance, if all deals are registered by all parties in real time, it will be impossible to cook the books and evade taxes, which is why many countries, including China, are trying to develop this revolutionary technology in a wide range of economic sectors, according to Yu Jianing, head of the Economic and Industrial Research Center at China’s Ministry of Industry and Information Technology.

"This technology helps resolve the issue of digitalizing corporate management. For instance, corporate departments earlier used to conduct accounting operations on paper. Documents were printed, stamped and posted. It had a negative effect on the coordination." He continued by saying that some companies operated illegally, for example, purposefully exaggerating their capital investments.

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"In traditional production, it is not that easy to confirm or refute your capital costs. As a result, financial structures had to add either a risk premium or a bonus for the capital cost when granting loans to a company."

Remarkably enough, blockchain helps avoid this, bringing down transaction costs and making loans more affordable. The range of its uses is truly wide: one can adopt it to track deliveries, which will ease foreign trade deals and will render such instruments as letters of credit excessive.

To illustrate the point, just a short while ago, trade giant Walmart, and IT titan IBM set up a blockchain alliance to better control the quality of traded goods. They will devise a platform that will enable customers to track the origin of purchased products, as well as delivery times and conditions, which will potentially rule out the possibility of low quality or counterfeit goods hitting supermarket shelves.

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