What China’s Blockchain Development Means for Foreign MNCs

This article was co-authored with APCO Intern Megan Robertson.

Introduction

The integration of digital innovation with economic advancement has long been a key focus of China’s development strategy. Yet the unprecedented disruptions brought by COVID-19 has given fresh impetus to how technological innovation can be leveraged to boost China’s post-pandemic recovery and increase the nation’s economic resilience.

The past few months saw a surge of government interest in blockchain. For instance, the State Council’s master plan for the Hainan Free Trade Port seeks to establish a “National Blockchain Technology and Industrial Innovation Development Base” on the island by 2025. In April, the Ministry of Industry and Information Technology (MIIT) also launched the “National Blockchain and Distributed Ledger Technology Standardization Committee” to formulate relevant national standards. Most significantly, the National Development and Reform Commission (NDRC) has incorporated blockchain into the central government’s “new infrastructure” initiative, a lynchpin for China’s post-pandemic economic recovery and a key indicator of blockchain’s position as a government priority.

Blockchain As A Strategic Development Tool

The immense value of blockchain technology was already recognized by the government prior to the COVID-19 pandemic. China’s first national blockchain white paper was released by MIIT in 2016, which acknowledged blockchain’s potential to enhance data security, transparency, and improve the efficiency of information processing. It also highlighted the technology as a valuable tool to further China’s economic and social transformation, entrepreneurship and innovation, as well as public management and governance. China’s blockchain ambitions were further consolidated in the State Council’s 13th Five Year Plan on National Informatization which underlined the technology as a national development priority.

As observed by CCID, a Chinese consulting agency specialized in blockchain, a total of 29 blockchain-related policies have been introduced at the national level from 2016 to 2019, 17 of which were introduced in 2019 alone. By the end of 2019, a total of 267 blockchain-related policies had been introduced at both the national and local levels in China, accounting for approximately 45 percent of all government policies involving blockchain globally. In October 2019, Chinese President Xi Jinping’s call to strengthen blockchain innovation also reaffirmed the government’s high-level endorsement of the technology, injecting further momentum into its development.

China’s Post-Pandemic Recovery: A Catalyst For Blockchain Development

The COVID-19 pandemic is propelling the development of blockchain in China, as the technology has presented itself as a much-needed solution to widespread social and economic challenges. In particular, unprecedented supply chain disruptions have revealed the critical value of blockchain in enhancing order tracking and delivery tracing, to ensure the timely supply of critical medical resources. During the pandemic, China has called on several pilot cities and enterprises to adopt blockchain technology as a means of accelerating the digitalization of supply chain management, in order to stabilize global supply chains and facilitate post-pandemic business resumption.

Blockchain-based platforms have also been leveraged to support struggling businesses, allowing lenders to quickly assess lending applications and insurance firms to manage coronavirus-related claims. Of note, the pandemic has seen significant investment in blockchain-powered financial solutions, such as the March announcement that the People’s Bank of China will receive an additional RMB 32.35 million (~USD 4.7 million) in special funding for research and development for the Bay Area Trade Finance Blockchain Platform. The platform will allow banks and businesses in the Guangdong-Hong Kong-Macau Greater Bay Area to store data on orders, transactions and logistics to enhance the efficiency of their business operations, while also providing regulators with greater oversight over monetary flows in the region.

Throughout the pandemic, local governments and medical providers have also partnered with China’s tech giants to enhance medical initiatives and accelerate the adoption of blockchain technology. China’s blockchain-based data collection applications surged at the onset of the pandemic as authorities rushed to manage the outbreak with contact-tracing capabilities whilst ensuring data protection. In this regard, the COVID-19 pandemic has revealed diverse possibilities for the application of blockchain, which will likely encourage further utilization of the technology in the future.

Opportunities And Challenges For Foreign Multinationals

The inclusion of blockchain as an integral component of China’s “new infrastructure” initiative places the technology at the forefront of the country’s post-pandemic economic recovery. The initiative involves using emerging technologies to stimulate economic growth through upgrading existing infrastructure and creating new innovative infrastructure. Experts have suggested that blockchain will be utilized as a means of ensuring trust and adding value to data in China’s new infrastructure construction, through improving the security of information storage and the capacity to verify data ownership and transfers. In response to the central government’s emphasis on blockchain, local governments in Guangzhou, Hainan, Hunan, Nanjing and Ningbo have already announced blockchain development strategies, including subsidies to support talent cultivation and establish related platforms, industrial parks and enterprises.

The trend of government and commercial platforms offering considerable resources to encourage blockchain development is likely to enable more cost-effective adoption. This provides potential opportunities for foreign multinationals in China to enhance their business operations and to develop a competitive edge through utilizing the technology.

However, the current development of blockchain in China remains at a relatively nascent stage, as a number of government standards have yet to be released. This means the extent to which companies can benefit from blockchain technology will likely be hindered by the limited interoperability and scalability of blockchain solutions in the near term. Foreign companies should continue to monitor the development of blockchain in China, as the overall trajectory and relevant risks are still unclear.