Emerging technologies such as blockchain, a subset of distributed ledger technology, are not limited to a single region or use case. Global powers are recognizing blockchain’s power to surpass the use of cryptocurrency and its potential to shape critical processes in many fields, including financial, healthcare, government, and supply chain. In pursuit of global competitiveness, China is a significant player in testing blockchain technology as well as implementing legal frameworks, regulations, and government initiatives around it.
This working paper examines the country case of China and assesses how it has progressed in its attempts to test, adopt, and implement blockchain technology. It offers insight into how China’s vision in blockchain technology has led to many innovation initiatives.
While Bitcoin introduced the world to blockchain over a decade ago, the buzz continues around the underlying technology, distributed ledger technology (DLT). Over the past decade, both the public and private sectors have continued to develop industry solutions and fund blockchain research and development. Reports project global blockchain funding will reach $11.7 billion by 2022.1 Note: Jessica Goepfert, Stacey Soohoo, James Wester, Ashutosh Bisht, Yash Ahuja, Ivana Slaharova, Mohamed Hefny, et al. “IDC’s Worldwide Semiannual Blockchain Spending Guide Taxonomy, 2H18.” IDC Corporate Worldwide, 2019; Christine Kim. “Report: Blockchain Spending to Hit Nearly $12 Billion By 2022.” Coindesk, July 19, 2018. https://www.coindesk.com/report-blockchain-spending-to-hit-nearly-12-billion-by-2022.
As global spending on DLT increases, it is worthwhile to ask how and why global actors like China are using blockchain technology. How is DLT impacting their financial sectors and improving global market competitiveness? Are there potential opportunities for collaboration?
China has dedicated significant resources to blockchain and made strides in assessing its potential within their own industries. For China, DLT is part of a broader technology vision that aims to position the country at the forefront of the global community. In this paper, we explain the technology and its significance, and assess how DLT is being developed in China. The paper offers insight into China’s vision for adopting blockchain technology and how it is building up an industry with a focus on domestic regulation, public/private sector use cases and an international vision of innovation initiatives.
What is Distributed Ledger Technology?
Despite a common misconception that “the blockchain” is cryptocurrency itself, the blockchain is the underlying technology, a subset of distributed ledger technology (DLT).2 Note: Sarah Frazar, Cindy Vestergaard, Benjamin Loehrke, and Luisa Kenausis. “Evaluating Member State Acceptance of Blockchain for Nuclear Safeguards,” 2019. https://stanleycenter.org/publications/blockchain-for-nuclear-safeguards/. At its core, DLT is a shared ledger that stores time-stamped data across multiple locations and combines technologies like cryptography, peer-to-peer protocols, and hashing.3 Note: Frazar et al., “Evaluating Member State Acceptance of Blockchain for Nuclear Safeguards.” Although its popularity is mostly associated with Bitcoin, an open, public DLT platform, it is the permissioned, enterprise platforms that are more widespread – including in China. These platforms are used beyond cryptocurrencies for a variety of applications, from tracking global shipping to improving access to, and security of, personal health records. 4 Note: Daniel Palmer, “IBM, Maersk’s Blockchain Platform TradeLens Is Shipping to Russia.” Coindesk, June 12, 2019. https://www.coindesk.com/ibm-maersks-blockchain-platform-tradelens-is-shipping-to-russia; E-Estonia. “Healthcare.” E-Estonia, n.d. https://e-estonia.com/solutions/healthcare/e-health-record/.
DLT can be classified as either permissionless, in which anyone can access the ledger, and permissioned, in which only specific participants can access the ledger. In order to input data, participants in the network must agree that the data are valid, and this is done through “a consensus mechanism that is specified in the algorithmic design of the distributed ledger.”5 Note: World Bank Group, “Distributed Ledger Technology (DLT) and Blockchain” (Washington DC, 2017), http://documents.worldbank.org/curated/en/177911513714062215/pdf/122140-WP-PUBLIC-Distributed-Ledger-Technology-and-Blockchain-Fintech-Notes.pdf. Specific to blockchain, data are stored in “blocks,” which are linked to one another by a cryptographic signature, and are append-only,6 Note: World Bank Group, “Distributed Ledger Technology (DLT) and Blockchain”; UK Government Chief Scientific Adviser, “Distributed Ledger Technology: Beyond Blockchain,” 2016, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/492972/gs-16-1-distributed-ledger-technology.pdf. meaning that data are not deleted, but rather that a change is notated at the end of the chain. Each block is “hashed” with a unique cryptographic signature, which verifies that the data have not been altered.7 Note: “What Is the Difference Between DLT and Blockchain?,” BBVA, 2018, https://www.bbva.com/en/difference-dlt-blockchain/. Each transaction and group of transactions (or blocks) stores the hash of its predecessor, and any attempts to alter a transaction are therefore rejected as incompatible with the rest of the chain and result in alerts to participants.8 Note: UK Government Chief Scientific Adviser, “Distributed Ledger Technology: Beyond Blockchain.”
The significance of DLT lies in its ability to provide an immutable record of data and enable proof of provenance for various data, such as licenses, legal documents, and photographs. Firms and governments are interested in using DLT due to its resistance to cyberattacks. In order to manipulate or change data within the distributed ledger, a cyberattack would need to simultaneously attack every copy of the distributed ledger, which is stored across multiple nodes, or locations. DLT differs from centralized databases or cloud-based data platforms, which can be accessed anywhere but are still stored in one central location. Cyberattacks on one centralized database need to attack only one location to maliciously manipulate or access the data. Thus, changes to the single ledger may go undetected since they are not comparable to trusted copies of the ledger as in a DLT system.
These are a few of the reasons why China is exploring the applications of DLT across various industries. The following sections explore how DLT is regulated, where DLT initiatives are concentrated, and the areas in which DLT is being utilized in China.
China’s International Vision in IT & DLT
On October 1, 2019, President Xi Jinping spoke at Tiananmen Square declaring that “China yesterday is already engraved in the history of mankind… and China tomorrow will be even more prosperous.”9 Note: Dylan McIlvenna-Davis, “Technology with Chinese Characteristics: China’s Strategic Vision in 2019,” Berkeley Political Review, January 13, 2020, https://bpr.berkeley.edu/2020/01/13/technology-with-chinese-characteristics-chinas-strategic-vision-in-2019/. China has determined that it will become a global leader particularly in the technology and manufacturing sectors through its Made in China 2025 plan (2015), which aimed to position China as the world leader in manufacturing by 2049.10 Note: “ ‘Made in China 2025’ Plan Issued,” The State Council of The People’s Republic of China, 2015, http://english.www.gov.cn/policies/latest_releases/2015/05/19/content_281475110703534.htm. Chinese plans for becoming a global leader extend into the technology sector; months before President Xi’s speech, the State Council released a plan for Chinese innovation and a pledge that China would become an “innovation country” by 2020 and a global “innovation leader” by 2030.11 Note: McIlvenna-Davis, “Technology with Chinese Characteristics: China’s Strategic Vision in 2019”; Zhang Yangfei, “Innovation-Driven Development Strategy Puts Country into Top 20,” China Daily, February 25, 2019, http://www.chinadaily.com.cn/a/201902/25/WS5c7343e2a3106c65c34eb213.html; Evelyn Cheng, “China Expands Global Ambitions with a New Phase of Xi’s Signature Program,” CNBC, April 29, 2019, https://www.cnbc.com/2019/04/29/belt-and-road-china-expands-global-ambitions-with-new-program-phase.html. China’s objectives in progressing its efforts in technology serve two overarching objectives: reducing foreign dependency, and advancing China as a high-tech manufacturer.12 Note: James McBride and Andrew Chatzky, “Is ‘Made in China 2025’ a Threat to Global Trade?,” Council on Foreign Relations, May 13, 2019, https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade. Heeding such a national vision for innovation, the Chinese government has entered the blockchain space to promote research and development, establish government committees, and identify regulatory standards. Indeed, in October 2019, Xi Jinping himself called on China to adopt DLT to promote innovation.13 Note: Arjun Kharpal, “With Xi’s Backing, China Looks to Become a World Leader in Blockchain as US Policy Is Absent,” CNBC, December 15, 2019, https://www.cnbc.com/2019/12/16/china-looks-to-become-blockchain-world-leader-with-xi-jinping-backing.html.
Aiming to establish China as an innovation leader, the Chinese State Council emphasized the importance of investing in a digital infrastructure.14 Note: Xu Wei, “New Infrastructure to Drive Growth,” The State Council of The People’s Republic of China, 2020, http://english.www.gov.cn/policies/policywatch/202005/06/content_WS5eb20ecfc6d0b3f0e9497089.html. According to China’s Ministry of Industry and Information Technology (MIIT), the Chinese government has been using big data in tracking COVID-19 cases by assigning individuals a color code that indicates their health status.15 Note: Nectar Gan and David Culver, “China Is Fighting the Ccoronavirus with a Digital QR Code. Here’s How It Works,” CNN, April 16, 2020, https://www.cnn.com/2020/04/15/asia/china-coronavirus-qr-code-intl-hnk/index.html. Blockchain technology can complement this process, as it has been used to ensure the security of personal data against misuse.16 Note: Xinhua, “China Values Privacy by Using Encrypted Data in Battle against Epidemic,” The State Council of The People’s Republic of China, 2020, http://english.www.gov.cn/statecouncil/ministries/202003/09/content_WS5e660a70c6d0c201c2cbde09.html.
Evidence of China’s commitment to DLT development includes the launch of the National Blockchain and Distributed Accounting Technology Standardization Technical Committee in April 2020 to further standardize the industry. Committee members include major companies such as JD.com, Huawei, Baidu, Ant Financial, and Tencent; the committee will also bring together researchers from universities, MIIT, and local governments.17 Note: Arjun Kharpal, “Chinese Giants Huawei and Tencent Join National Group on Blockchain after Xi’s Backing for the Tech,” CNBC, April 15, 2020, https://www.cnbc.com/2020/04/15/huawei-tencent-on-china-blockchain-national-committee.html; Sarah Dai and Yujie Xue, “China Enlists Huawei, Tencent, Ant Financial in National Blockchain Committee to Set Standards,” South China Morning Post, April 16, 2020, https://www.scmp.com/tech/blockchain/article/3080259/china-enlists-huawei-tencent-ant-financial-national-blockchain China’s vision for improving national and international standards for technology is embodied in the multi-year project China Standards 2035,18 Note: Arjun Kharpal, “Power Is ‘Up for Grabs’: Behind China’s Plan to Shape the Future of Next-Generation Tech,” CNBC, April 26, 2020, https://www.cnbc.com/2020/04/27/china-standards-2035-explained.html. released in 2020, and the establishment of the aforementioned blockchain committee.
The Basis and Status of China’s Regulatory Framework for DLT
China filed more patents in blockchain technology—58,990—than any other country in 2019,19 Note: Francis Gurry, “China Becomes Top Filer of International Patents in 2019 Amid Robust Growth for WIPO’s IP Services, Treaties and Finances,” WIPO, April 7, 2020, https://www.wipo.int/pressroom/en/articles/2020/article_0005.html. making it clear that DLT initiatives are becoming an increasingly significant part of China’s technological landscape. Next we discuss the location, status, and regulatory framework of these initiatives.
Generally, DLT initiatives have been concentrated in the eastern coastal region of China and Sichuan. China has four major blockchain hubs, located around its major cities20 Note: Deloitte. “Rising Innovation in China,” Deloitte Report, September 2019, https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/innovation/deloitte-cn-innovation-china-innovation-ecosystem-report-en-191101.pdf. : in Sichuan and Chongqing, Guangdong centered on Shenzhen, Yangtze Delta centered on Hangzhou and Shanghai, Xiong’an New Area and Beijing. Sichuan and Chongqing boast favorable policies and low electricity costs, while Guangdong is a hotbed of innovation and industry. The Yangtze Delta is an advanced economic center and center of globalization, and Beijing is home to top universities and produces some of the top tech talents. Regions such as the Guangdong–Hong Kong–Macao Greater Bay Area have seen the start of DLT projects such as the People’s Bank of China’s (PBOC) pilot trade financing platform.21 Note: Xinhua, “China Boosts Pilot Regional Financial Reform: PBOC,” People’s Daily Online, August 6, 2019, http://en.people.cn/n3/2019/0806/c90000-9603800.html. The Greater Bay Area was at the forefront of a cooperative blockchain group with the establishment of the Guangdong–Hong Kong Macao Greater Bay Blockchain Alliance in November 2018.22 Note: Connie Wang. “A New Blockchain Alliance Is Established in Guangdong-Hong Kong-Macao Greater Bay Area,” 8btc, November 19, 2018, https://news.8btc.com/a-new-blockchain-alliance-is-established-in-guangdong-hong-kong-macao-greater-bay-area. Over 150 DLT initiatives have developed in the Greater Bay Area, while Hong Kong’s Innovation and Technology Fund23 Note: The Hong Kong Innovation and Technology Fund provides funding to Hong Kong for technology start-ups. has funded $67.2 million across 18 DLT projects.24 Note: “LC15: Application of Blockchain Technology,” The Government of Hong Kong Special Administrative Region, 2019, https://www.info.gov.hk/gia/general/201905/29/P2019052900474.htm; Greater Bay Blockchain Association, “Background.”
The Chinese government aims to facilitate further development of DLT with the creation of a national Blockchain-Based Service Network, a hosting platform for small and large companies engaging in DLT. Such developments demonstrate how China is engaging in opportunities for DLT initiatives to emerge and coexist with existing infrastructure. The main government regulatory authority for DLT is the Cyberspace Administration of China, which requires that all DLT initiatives register with the agency.25 Note: Laney Zhang, “China: Rules on Blockchain-Based Information Services Issued Requiring Authentication of Users’ Real Identities,” The Law Library of Congress, 2019, https://www.loc.gov/law/foreign-news/article/china-rules-on-blockchain-based-information-services-issued-requiring-authentication-of-users-real-identities/. Other bodies regulating the DLT space include the PBOC, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, and the China Banking Regulatory Commission.
DLT is being explored further in sandbox pilots, which are in use in major cities across China. These pilots began in December 2019, and include Shenzhen, Shanghai, Guangzhou, Suzhou, Chongqing, Hangzhou, Beijing, Chengdu, and Xiong’an New Area.26 Note: Peng, Ting. “China Adds a New City to Their Fintech Pilot Initiative,” Coin Telegraph, July 20, 2020, https://cointelegraph.com/news/china-adds-a-new-city-to-their-fintech-pilot-initiative The sandbox assists cities in building up DLT, particularly in fintech. Projects under trial will allow buyers, sellers, and other intermediaries to carry out contactless digital transactions.
Blockchain in China
China, Blockchain, and the Financial Sector
From Bitcoin to Libra, one of the broadest applications of blockchain in China is in the financial technology or “fintech” area, in which blockchain-backed projects have involved virtual currencies, supply chain financing, and transaction processing. Fintech includes companies that are utilizing emerging technologies to enhance current infrastructure as well as disrupt traditional financial services.27 Note: CFTE, “What Is Fintech? What Are Some Definitions of Fintech?,” Medium, January 3, 2019, https://medium.com/the-centre-for-finance-technology-and-entrepreneur/what-is-fintech-what-are-some-definitions-of-fintech-ddffebd98c1d; EY, “EY FinTech Adoption Index 2017,” 2017, https://www.ey.com/Publication/vwLUAssets/ey-fintech-adoption-index-2017/$FILE/ey-fintech-adoption-index-2017.pdf. A 2019 EY report interviewing over 27,000 consumers in 27 markets found the adoption rate of fintech in China to be 87 percent.28 Note: EY, “Global FinTech Adoption Index 2019,” 2019, https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdf.
Although China banned initial coin offerings,29 Note: Initial coin offerings (ICOs), similar to crowdfunding, allow the public to buy a limited number of “tokens” to support the launch of a new project (e.g., Ethereum, Ripple). Tokens represent value within a platform and can be voting rights, a value, etc. While startups like Block.one raised over $4 billion through an ICO, the United States Securities and Exchange Commission (SEC) warns that some ICOs may be fraudulent, without any returns for the investor. Kate Rooney, “A Blockchain Start-up Just Raised $4 Billion without a Live Product,” CNBC, May 31, 2018, https://www.cnbc.com/2018/05/31/a-blockchain-start-up-just-raised-4-billion-without-a-live-product.html; Ameer Rosic, “What Is An Initial Coin Offering? Raising Millions In Seconds,” Blockgeeks, 2017, https://blockgeeks.com/guides/initial-coin-offering/. the Deputy Director of the PBOC has reconfirmed China’s commitment to developing its own sovereign digital currency.30 Note: People’s Daily Online, “China’s Central Bank to Launch Digital Currency,” People’s Daily Online, August 16, 2019, http://en.people.cn/n3/2019/0816/c90000-9606604.html; Helen Davidson, “China Starts Major Trial of State-Run Digital Currency,” The Guardian, April 28, 2020, https://www.theguardian.com/world/2020/apr/28/china-starts-major-trial-of-state-run-digital-currency. This currency, which is close to launch and already tested in major cities, will be rolled out by the central bank to commercial banks, which can provide customers with digital wallets or other applications for receiving and using the currency. The currency will be streamlined in its issuance with physical currency and is intended to disrupt the economy as little as possible.
China’s financial sector, including both fintech and traditional financial institutions, is increasingly adopting DLT. Baidu Finance, Tencent, and JD Finance are major fintech/e-commerce firms that have developed large DLT platforms for diverse financial purposes.31 Note: Sara Hsu and Jianjun Li, China’s Fintech Explosion: Disruption, Innovation, and Survival (New York: Columbia University Press, 2020). Baidu Financial Credit Collection Platform has partnered with Shanghai Pudong Development Bank to use DLT for collection tasks, increasing information sharing and transparency of the process. Smart contracts can be accessed to properly determine collection tasks and settle funds while maintaining information security.32 Note: Industrial and Commercial Bank of China (ICBC) Research Center, “Blockchain Financial Application Document White Paper,” 2020, http://n0.sinaimg.cn/finance/9b213f90/20200421/QuKuaiLianJinRongYingYongFaZhanBaiPiShu.pdf. Tencent Cloud uses DLT for warehouse pledge financing to record the authenticity of goods listed on warehouse receipts. The process can help prevent the double financing of goods. JD Finance and UnionPay established a partnership to share credit information to guard against fraud.
Banks have adopted DLT platforms to improve traditional processes.33 Note: Hsu and Li, China’s Fintech Explosion: Disruption, Innovation, and Survival. Minsheng Bank has worked with China CITIC Bank to create the first letter of credit blockchain application. In August 2016, WeBank and Shanghai Huarui Bank set up an inter-account reconciliation platform that maintains business capital and transaction information on the blockchain. Data is passed between the two banks securely, allowing for quasi–real time reconciliation.34 Note: Xiao Le, “Does Blockchain Just Look Beautiful? Wezhong Bank Used It to Do This,” NBD.com, November 15, 2016, http://www.nbd.com.cn/articles/2016-11-15/1052983.html. China Merchants Bank Credit Card Center is using an asset-backed securities project management blockchain platform that was set up by FunChain Technology.35 Note: Chain News, “FunChain Technology Won the Bid for the China Merchants Bank Credit Card ABS Management Platform, and Introduced Blockchain Technology into Credit Card Asset Securitization,” Chain News, January 10, 2019, https://www.chainnews.com/news/471592352232.htm. This improves transparency and records data such as the status of bond financial process, allowing bond investors to view the process and ensure the credibility of the assets.
DLT has been useful in tracking cross-border payments. The Bank of China is cooperating with UnionPay to create a blockchain-based payment system for cross-border payments. The Industrial and Commercial Bank of China has set up a China-Europe e-Single Pass that brings together port companies, banks, regulatory agencies, customs, and other bodies to set up a cross-border trade financial service ecosystem for smooth document and information flow and funds traceability. The system improves business processing efficiency in trade settlement.
Alliances have also been established to conduct and share research and development of blockchain technology. The Financial Blockchain Cooperation Alliance, or Gold Chain Alliance, includes more than 100 members in banking, funds, securities, insurance, local equity exchange, and technology. Chongqing has also set up an alliance that incorporates over 100 firms in an effort to develop DLT applications for the city and generate billions of RMB in value.36 Note: Shaun Ee, “Chongqing Is Launching a Blockchain Alliance and Public Service Platform,” TechNode, April 15, 2020, https://technode.com/2020/04/15/chongqing-is-launching-a-blockchain-alliance-and-public-service-platform/.
Some alliances have been created to improve banking processes. The State Administration of Foreign Exchange plans to form an alliance with commercial banks to establish a national “cross-border business blockchain service platform.” The State Administration of Foreign Exchange is working with commercial banks to share customs clearance verification information and allow banks to submit applications for customs clearance financing.37 Note: Xinhua, State Administration of Foreign Exchange Expands Cross-border Blockchain Platform,” Xinhua, November 25, 2019, http://www.xinhuanet.com/money/2019-11/25/c_1125269585.htm.c The China Trade Finance Cross-Bank Transaction Blockchain Platform, established by the China Banking Association with a number of banks,38 Note: PYMTS, HSBC China Collabs on Another Blockchain Trade Finance System, January 8, 2019, PYMTS, https://www.pymnts.com/news/b2b-payments/2019/hsbc-china-banking-blockchain-trade-finance/. uses DLT to coordinate interbank transactions, such as the transfer of information.
A new type of alliance promises to greatly reduce the costs of creating DLT applications by providing an existing blockchain framework. The national Blockchain-Based Service Network (BSN) is composed of government departments, banks, and technology companies and allows participants across China to easily construct their own DLT applications.39 Note: Nick Stockton, “China Launches National Blockchain Network in 100 Cities,” IEEE Spectrum, March 20, 2020, https://spectrum.ieee.org/computing/software/china-launches-national-blockchain-network-100-cities. The network greatly reduces costs for firms to build and operate their own blockchain applications, from about US$14,000 to less than $300.40 Note: Ibid. The BSN Alliance, comprising the State Information Center and major organizations like China Telecom, is testing BSN in over 50 cities, including Hong Kong and Singapore, and intends to expand internationally.41 Note: Wolfie Zhao and David Pan, “Inside China’s Plan to Power Global Blockchain Adoption,” Coindesk, April 14, 2020, https://www.coindesk.com/inside-chinas-plan-to-power-global-blockchain-adoption. Ant Financial has created the Ant Blockchain Open Alliance to reduce barriers to entry for small to medium enterprises (SMEs).42 Note: Miranda Wood, “China’s Ant Launches Blockchain Open Alliance for SMEs,” Ledger Insights, November 2020, https://www.ledgerinsights.com/china-ant-blockchain-open-alliance/. The alliance introduces DLT as a service built on the Alibaba Cloud.
Government-Sponsored Pilot Blockchain Projects
In line with its ultimate policy aim of expanding innovative technology, China’s government has promoted the use of DLT in several major areas. The central bank has created a DLT system that digitizes checks. The Supreme People’s Court has stated that it supports the use of blockchain in the storage of digital evidence. Local governments, at both the provincial and city levels, have also incorporated the technology. Over 30 provincial and city governments have introduced over 40 policies to support emerging technologies, including DLT.43 Note: Sara Hsu and Jianjun Li, China’s Fintech Explosion: Disruption, Innovation, and Survival (New York: Columbia University Press, 2020).
The cities of Guangzhou, Beijing, Shanghai, Suzhou, Xiong’an, and others have prioritized the development and integration of DLT. Guangzhou has incorporated DLT into its development zone. Beijing set up the Zhongguancun Blockchain Alliance to promote the development of the technology. Shanghai has created an incubation base in its Baoshan District. Suzhou set up a training base to train hundreds of DLT technicians. Xiong’an New District has set up the Xiong’an Land Requisition and Demolition Fund Management Blockchain Platform to track relocation and resettlement and related fund payments.44 Note: Industrial and Commercial Bank of China (ICBC) Research Center, “Blockchain Financial Application Document White Paper.” The requisition and demolition fund management platform was established by the Industrial and Commercial Bank of China (ICBC). The platform tracks requisition contracts, fund approvals, fund payment instructions, and fund transmission.
China, Blockchain, and Private Business
Regarding DLT uses outside of fintech, President Xi Jinping stated during the 18th collective study of the Political Bureau of the Central Committee that DLT had the potential for many uses in China.45 Note: William Foxley, “President Xi Says China Should ‘Seize Opportunity’ to Adopt Blockchain,” Coindesk, 2019, https://www.coindesk.com/president-xi-says-china-should-seize-opportunity-to-adopt-blockchain. As of 2018, China holds the most blockchain patents in the world,46 Note: Yessi Bello Perez, “Data: China Has the Most Blockchain Patents, Despite Banning Cryptocurrency,” The Next Web, 2019, https://thenextweb.com/hardfork/2019/03/13/data-china-is-patenting-all-the-blockchain-tech-despite-banning-cryptocurrency/. and DLT applications expand across the private sector to include the medical industry and supply chain sector.
The COVID-19 pandemic has exacerbated five major challenges facing the medical supply chain: varying product requirements, credibility of payments, credibility of suppliers, tracking throughout transportation, and customs certifications.47 Note: Nishan Degnarain, “Five Ways Blockchain Can Unblock the Coronavirus Medical Supply Chain,” Forbes, March 22, 2020, https://www.forbes.com/sites/nishandegnarain/2020/03/22/5-ways-blockchain-can-unblock-the-coronavirus-medical-supply-chain/#6d9062b13805. Blockchain is a potential answer for addressing these problems, specifically focusing on streamlining medical processes and ensuring protection of personal data. Chinese DLT initiatives in the medical industry have been ongoing since the 2017 launch of Alibaba’s blockchain project for securing medical data.48 Note: William Suberg, “Alibaba Deploys Blockchain to Secure Health Data in Chinese First,” Coin Telegraph, August 18, 2017, https://cointelegraph.com/news/alibaba-deploys-blockchain-to-secure-health-data-in-chinese-first. Other major companies pursuing DLT solutions in the medical space include Baidu and Tencent, which have also developed platforms for sharing medical data across multiple entities.49 Note: Forkast.News, “How Baidu, Alibaba and Tencent Aim to Disrupt Chinese Health Care,” Forkast, updated April 8, 2020, https://forkast.news/baidu-alibaba-tencent-china-health-care-blo/. For example, Baidu launched XuperChain, an open-source blockchain platform, for storing medical data (e.g., diagnoses and treatments) in Chongqing’s Yuzhong District. XuperChain is expected to expand to other regions in the coming years.50 Note: Forkast.News, “How Baidu, Alibaba and Tencent Aim to Disrupt Chinese Health Care.” Additional evidence of Chinese companies using DLT to streamline medical processes includes the joint Ant Financial and Huashan Hospital 2018 pilot, which tracks prescriptions throughout the supply chain to ensure a tamper-proof process and prevent misuses of prescriptions for unauthorized refills.51 Note: Mark Barley, “Ant’s Alipay Launches Online Drug Prescription Blockchain,” Ledger Insights, 2018, https://www.ledgerinsights.com/ant-alipay-drug-prescription-blockchain/.
Based in Beijing, Energy Blockchain Labs Inc. has used IBM blockchain technology to develop a DLT platform for trading carbon credits. The platform aims to promote transparency and streamline efforts to limit greenhouse gases by allowing high- and low-emitters to trade carbon credits through smart contracts, enabling compliance with government-mandated Certified Emission Reductions (CER) quotas.52 Note: IBM, “Energy Blockchain Labs Inc.,” https://www.ibm.com/case-studies/energy-blockchain-labs-inc#:~:text=Based in Beijing%2C China%2C Energy, the carbon emissions reduction market, accessed July 8, 2020. China’s Hyperchain (Hangzhou Qulian Technology) is developing a solution for China’s State Grid Corporation, which will incorporate the Internet of Things (IoT).53 Note: “Next City! Hyperchain Technology Successfully Won the Bid for the State Grid Blockchain Project, and Its Layout Is Ubiquitous,” Hyperchain, November, https://www.hyperchain.cn/news/152.html; Miranda Wood, “China’s Hyperchain to Apply Blockchain to National Grid,” Ledger Insights, October 18, 2019: https://www.ledgerinsights.com/chinas-hyperchain-to-apply-blockchain-to-national-grid/.
On the supply chain side, DLT has the potential to increase data processing times and assist in product verification. These applications are not limited by national boundaries and may involve international trade. One example is the export of US soy to China using the Easy Trading Connect platform, which has significantly decreased processing times of data involved in the shipment.54 Note: Nigel Hunt and Adrian Croft, “U.S. Soy Cargo to China Traded Using Blockchain,” Reuters, January 22, 2018, https://www.reuters.com/article/grains-blockchain/u-s-soy-cargo-to-china-traded-using-blockchain-idUSL8N1PG0VJ. Similarly, Walmart China and VeChainThor blockchain are developing the Walmart China Blockchain Traceability Platform to track food along the supply chain.55 Note: Adrian Zmudzinski, “Walmart China Will Track Food in Supply Chain with Vechain’s Thor Blockchain,” Coin Telegraph, June 25, 2019, https://cointelegraph.com/news/walmart-china-will-track-food-in-supply-chain-with-vechains-thor-blockchain. A second application of DLT in the supply chain side in China is the use of DLT for product verification. JD Digit’s Blockchain Data Service in China, for example, is the first of its kind in the region. Through JD’s Blockchain Anti-Counterfeiting platform, users are able to scan bar codes via a mobile app in order to access product information and tracking records of over 60,000 SKUs.56 Note: Miranda Wood, “JD.com’s blockchain used for traceability and asset backed securities,” Ledger Insights, October 30, 2019, https://www.ledgerinsights.com/jd-com-blockchain-traceability-asset-backed-securities/.
China is a rapid adopter and developer of blockchain, which has been applied to a variety of industries, including finance, energy, medicine, and supply chain. China’s government support for blockchain firms and applications has boosted the use of the technology across the country. The technology is modernizing the nation, improving security and transaction speed for customers.
While DLT may have been popularized by cryptocurrencies like Bitcoin, the technology’s use goes far beyond an attempt to replace traditional currencies. China has not only tested DLT in the financial sector, but also developed regulatory frameworks and incorporated the technology in a multitude of other applications. The government established a government blockchain committee and the multi-year project, China Standards 2035.57 Note: Arjun Kharpal, “Power Is ‘Up for Grabs’: Behind China’s Plan to Shape the Future of next-Generation Tech,” CNBC, April 26, 2020, https://www.cnbc.com/2020/04/27/china-standards-2035-explained.html.
China’s commitment to the development of DLT gave birth to the recent government initiative to develop a national Blockchain-Based Service Network (BSN), which would allow companies of varying sizes to engage in DLT. Thus, China is opening the doors for others within its boundaries to take part in the government’s push for technological leadership.
In terms of its international vision, China’s experience with DLT has been to improve its competitiveness within the international market. The country’s international vision for DLT is prefaced by Made in China 2025, which proposes China as the world’s leader in manufacturing by 2049.58 Note: “ ‘Made in China 2025’ Plan Issued,” The State Council of The People’s Republic of China, 2015, http://english.www.gov.cn/policies/latest_releases/2015/05/19/content_281475110703534.htm. China has not pursued a national cryptocurrency, but instead is testing a digital sovereign RMB—a digital currency, not a cryptocurrency. China has also utilized DLT in the financial sector to improve traditional processes, such as information sharing between banks. The country’s private sector has created projects on and improved processes through DLT. As testimony to its global leadership in DLT development, China was the world leader in number of patents in blockchain technology in 2018. Note: Perez, “Data: China Has the Most Blockchain Patents, despite Banning Cryptocurrency.” Some of the patents include Alibaba’s music originality analysis method and device using DLT, China Unicom’s method of tracking food quality on the blockchain, and Ant Financial’s blockchain charity application.
As technology progresses, it follows the five basic stages of adoption: (1) innovators; (2) early adopters; (3) early majority; (4) late majority; and (5) laggards.59 Note: “The 5 Customer Segments of Technology Adoption,” On Digital Marketing, https://ondigitalmarketing.com/learn/odm/foundations/5-customer-segments-technology-adoption/. The advantage that countries have in the utilization of a given technology depends in large part on how lucrative the technology is and how early a country adopts the technology. It seems clear that China is among the early adopters, giving the nation a relative advantage to other countries who do not yet have full DLT programs in motion. What China and other countries will do with this technology in the future remains to be seen, but at present the possibilities seem endless, from “smart cities” to far-reaching advances in medical care. Will the major global powers collaborate on DLT development and, if so, to what extent? Will DLT systems developed by different countries be compatible? Will they compete? As DLT continues to develop in domestic markets, these questions will be critical to the future of the technology.