Digital transformation is a national priority for China, and it’s being integrated into both enterprise and banks and other services industries, Cointelegraph reported.
According to a February 4 report from Economic Information Daily, chairman of Minsheng Bank Hong Qi said: “The full adoption of digital technologies such as blockchain is expected to accelerate the digital transformation and upgrade its agriculture, manufacturing, finance and other services in the next 10 years.”
China Minsheng Bank is the first national commercial bank owned principally by non-government enterprises. It is famous for making loans to small and medium-sized enterprises. It is also one of the earliest adopters of blockchain technology in the Chinese banking sector. It has already applied blockchain technology to the two key areas of traditional finance – forfeiture and letters of credit.
Bankers in China believe that blockchain will change the core standards of the financial system. It will also have an overwhelming impact upon the foundational systems of the existing banking system and relationships between participants.
In December, news broke that the Bank of China had issued 20 billion yuan ($2.8 billion) in bonds to small and medium-sized enterprises using blockchain technology.
Several months ago, Cointelegraph reported that a new, independently-developed blockchain-based smart city identification system was jointly launched by three institutes based in the city of Shijiazhuang in North China’s Hebei Province. Over 10 million blockchain-based invoices were successfully issued in China’s tech capital Shenzhen.
Meanwhile, Wired reported that this may be the year we see the world’s first sovereign digital currency. First discussed more than five years ago, China’s DCEP (short for Digital Currency/Electronic Payments) looks to be nearing completion. There have been some false starts; reports initially said there was a chance it would be released countrywide by November 11, while Caijing, a large domestic finance magazine, thought it would be debuted in Shenzhen before the end of 2019.
While neither of these deadlines have come to pass, it’s clear that China is gearing up to release DCEP as soon as possible, according to presentations by Mu Changchun, the head of the Chinese central bank’s digital currency research institute. In these presentations, Mu has elucidated a vision of a sovereign digital currency, one that stands in stark contrast to the decentralised aspirations embedded into existing cryptocurrencies such as bitcoin.
There are three main differences between DCEP and existing cryptocurrencies such as bitcoin, according to Terry Liu, CEO of VoneChain Technology, a blockchain consultancy based in Shanghai that is working closely with various government agencies on projects related to its rollout. First, it’s underlying value source is different. Bitcoin and related currencies are mined, which means the source is decentralized and controlled by an algorithm. DCEP is government sanctioned, and as more than 50 patents registered in relation to DCEP indicate, the plans are for the government to distribute the currency through traditional banks and the monetary system, making it fully centralised and exactly like the release of traditional paper money.
Second, the underlying technology is different as the blockchain ledger will be controlled by the government and not distributed across the system. Finally, it is intended to operate exactly like a normal currency and integrated throughout the commercial system. Because the ledger is held by the government and is not distributed to mining nodes, the currency won’t have the time lags associated with bitcoin, making it practical to use in everyday situations. Also, because it is released by the government and pegged to the valuation of the yuan, it won’t be traded in fractions. It is likely to be seamless; most consumers won’t really notice a huge difference between using DCEP and existing digital payments platforms.
“As digital natives, Chinese welcome further convenience and integrated infrastructure into their lives,” says Chloé Reuter, founding partner of Reuter Communications, a marketing agency based in Shanghai. The two largest digital payments platforms in the country, run by Ant Financial (a division of Alibaba) and Tencent respectively, already handle trillions of dollars of payments per quarter. People are so used to mobile payments that the government had to remind vendors that it was illegal not to accept paper money. “With a population already very well-used to cashless spending thanks to WeChat Pay and Alipay, it wouldn’t be anything new to deal with another form of digital payment,” Reuter says.
“The government has always taken the reigns of building infrastructure,” noted Jingyang, one of China’s first investors in bitcoin. “Just like they built ports and rail, they’re now gearing up to build the digital infrastructure that is necessary for future development.”