China’s government is doubling down on its embrace of distributed databases with the establishment of an “advanced blockchain industrial system”, as the country looks to incorporate the technology into its economic and development plans.
The country plans to establish industrial standards, tax incentives and intellectual property protections to support the blockchain industry, for which it wants to become a world leader by 2025, according to a document released on Monday by the Ministry of Industry and Information Technology (MIIT) and Cyberspace Administration of China (CAC), the two agencies in charge of the world’s largest internet industry. The document also mentioned plans to enhance global cooperation under the Belt and Road Initiative (BRI).
“[The] recent guidance confirms policymakers’ long-standing commitment to blockchain technology as a key strategic technology,” said Matthew Graham, CEO of Sino Global Capital.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
The document emphasises the necessity of cultivating national champions that can compete globally, as well as the importance of blockchain to the real economy – including supply chain management, product traceability and data sharing – and public services like identity documentation, property registration, and education and health care data management.
While China has supported the development of blockchain within certain domains for some time, the industry has seen little progress beyond a burst of activity after President Xi Jinping endorsed the technology in late 2019.
Globally, the blockchain industry is dealing with a commercialisation bottleneck as some applications, like traceability and proof of copyright ownership, “are not as profitable as expected”, said Gao Chengshi, a cryptography expert and founding partner of blockchain developer Shanghai Hashvalue Information Technology. But the industry is still “at a very early stage”, he added.
Still, the industry is set to grow faster in China than anywhere else in the world. Market intelligence firm IDC estimates the industry in China is growing 54.6 per cent annually, to reach US$2.5 billion by 2025, above the global average of 48 per cent.
This does not mean progress will come overnight, though.
“Guidance often comes from the top policymakers to ‘accelerate’ technologies on a national level, and it is then left to municipal governments to implement,” said Graham.
“China has started setting standards for blockchain. For example, last year the central bank issued one on distributed ledger security, and the local governments are working on some regional standards,” Gao said. “But we have to say that the work needs to be improved.”
Blockchain is a permanent, tamper-resistant distributed ledger of transactions that is best known as the technology behind bitcoin.
While Beijing has a complicated relationship with cryptocurrencies, the nature of blockchain technology makes it ideal for other use cases, such as tracing documents and tracking ownership of digital goods – something that has aided the recent boom in non-fungible tokens (NFTs).
Beijing has restricted cryptocurrency trading since 2013, cracking down on the practice multiple times since then. In its latest move last month, the financial body of the State Council issued an alert calling for a crackdown on bitcoin mining.
As with Xi’s 2019 endorsement, MIIT and CAS did not mention cryptocurrencies this week.
The document was “strictly related to the technology or ‘token-less’ applications”, said Graham. “While some would see these announcements as ‘bullish’ for cryptocurrencies, support for blockchain technology does not mean support for some applications of the technology like cryptocurrencies.”
More from South China Morning Post: