Blockchain with 'Chinese characteristics' quietly takes off with Beijing's blessing while shunning cryptocurrency
South China Morning Post
6 min read
The growth of China's blockchain market has accelerated in 2022, with the total number of services registered with the country's internet regulator reaching 1,821, according to a review of government documents and interviews with industry insiders.
The pace of certification for new blockchain services sped up at the end of last year, with the Cyberspace Administration of China (CAC) releasing new lists of recent ventures every two to four months, up from six to eight months from March 2019 through 2021.
The agency has released 197 lists in three years, with blockchain projects encompassing legal, financial, agricultural and intellectual property protection services.
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The accelerated release schedule illustrates Beijing's determination to develop blockchain applications that align with the country's economic and technological goals, while maintaining tight control over the more decentralised applications for which the technology is known.
The country has banned the trading of cryptocurrencies, blockchain's original use case with bitcoin, which also effectively prohibits the trading of non-fungible tokens (NFTs) on public blockchains like Ethereum.
However, an increasing number of Chinese companies are looking for new applications for blockchain, potentially opening up a huge market for services run on the technology, which is a type of immutable distributed ledger maintained by different computer nodes on a network. Market research firm IDC estimates that China's blockchain market could be worth over US$3.2 billion by 2025, with an annual compound growth rate of 47 per cent from 2020 to 2025.
"It is not hard to be registered [with the government], and it is a way to stay close to regulators," said Jiang Lifeng, the vice-president of Hangzhou-based blockchain service provider DataQin, which has three legal and financial services registered with the CAC.
Since starting in 2016, DataQin has made law one of the key areas for its consortium blockchain called Baoquan Chain, which Jiang said can turn "data into evidence and make evidence transmissible" by digitising secured notary services. Consortium blockchains limit who can participate in the network, allowing them to operate in mainland China's tight regulatory environment.
DataQin's focus on law paid off in 2018, when the Hangzhou Internet Court allowed evidence collected using Baoquan, marking the first case in China to use blockchain-based evidence.
The promising sector has even received the blessing of China's Supreme People's Court, which said in May that it aims to "build a blockchain alliance between the court and all trades of the society by 2025".
Many of China's biggest tech firms and some of their subsidiaries also have blockchain services registered with the CAC. Tencent Holdings, JD.com, Xiaomi, NetEase and Baidu all appear on the lists. Alibaba Group Holding, owner of South China Morning Post, and its fintech affiliate Ant Group, owner of Alipay, are also there.
The majority of registered services are for legal and financial applications and Blockchain-as-a-Service (BaaS), which allows customers to apply pre-existing blockchain technologies like smart contracts to their own businesses.
"It makes sense for China's blockchain development and the investment road map in new technology for companies to come up with general BaaS platforms as opposed to vertical blockchain applications," said Catherine Hong, a senior market analyst who monitors the BaaS market at research firm IDC.
Market revenue has maintained growth of about 90 per cent over the past two years, she added.
By trying to dissociate the technology from its most well-known use cases overseas, Beijing has fuelled a race to develop blockchain with "Chinese characteristics".
"Most of China's blockchain applications will be in the form of BaaS, as the country has already ruled out other mainstream ways tied to blockchain," said Bo Zhengyuan, a partner with research firm Plenum.
A number of companies in China are looking into various financial services that can be provided using blockchain. Photo: Shutterstock alt=A number of companies in China are looking into various financial services that can be provided using blockchain. Photo: Shutterstock>
While cryptocurrencies are banned, banks have been exploring other financial use cases for blockchain. China Zheshang Bank, for example, has five services registered with the CAC, according to a list from 2019. These include services for personal financial transfers, receivables and supply chain management.
Some of the registered services have ventured into unexpected fields. One company named Blockchain Technology Shenzhen Research Institute developed a service to record family trees, catering to a growing demand among Chinese families to trace their roots.
Chongqing, a city in southwestern China, has a blockchain system to protect the branding of Fuling pickled vegetables, a local speciality, and at least five services across China are related to the Communist Party's management and propaganda. One of the applications is for "sending greetings to the Party at its 100th year anniversary".
A plurality of the registered services come from Beijing and southern Guangdong province, home to Shenzhen and Guangzhou. The regions have 477 and 352 registered blockchain services, respectively. Plenum's Bo said this reflects the demographics of China's tech capitals.
"The market is entering a new phase, from building underlying technologies to standardising applications and tools," IDC's Hong said. "With the rise of metaverse and Web3, both traditional and innovative scenarios have great potential."
Web3 is the term used to refer to a decentralised World Wide Web based around blockchain technologies. Projects related to the metaverse, conceived as a next-generation version of the internet where people interact in shared 3D virtual worlds, also often involves selling virtual goods in the form of NFTs.
Beijing has been bullish about blockchain as a means of digitising the country's traditional industries and helping them innovate. In a guideline released in June 2021, the CAC and the Ministry of Industry and Information Technology called for "fastening the development of blockchain technological applications and industrial development", as well as the merging of blockchain and other buzzy technologies including the industrial internet, big data, cloud computing and artificial intelligence.
However, DataQin's Jiang said that the blockchain sector still expects more practical support such as industry-specific policies and subsidies. There is "loud thunder but small raindrops" for now, he said, using a Chinese proverb that describes vocal support but little action.
At the same time, the requirement that blockchain-related projects be registered with the CAC has allowed the authority to gradually increase its supervision of related applications.
Tencent-owned WeChat recently said that accounts that display digital collectibles - the term used in mainland China to refer to NFTs on domestic blockchains - need to have contracts with blockchain companies certified by the CAC. Likewise, Alipay also only services certified digital collectible businesses.
