China Set to Pilot Digital Currency in Two Cities

The People’s Bank of China (PBOC) – the country’s central bank – is set to test its much-anticipated digital currency electronic payment (DC/EP) in the cities of Shenzhen and Suzhou, according to local report from Chinese financial news outlet Caijing.

According to reports, the initial pilot for the CBDC is set for the city of Shenzhen before the end of 2019, and may possibly include the city of Suzhou. This new development indicates that the PBoC will become the first Central Bank in the world to issue its digital currency.

PBOC has reportedly partnered with seven state-owned companies to execute the test, which includes four financial institutions and three telecom giants.

Sources close to the matter have claimed that the central bank has introduced a “horse race” amongst the financial institutions from Shenzhen to enable and encourage the companies to develop their own innovative implementation strategies for a successful test-run of the pilot.  It is indicated that other locales could be included in the testing, however no exact details have been disclosed.

The article further reads:

“Compared with the previous pilot, this time the central bank’s legal digital currency pilot will go out of the central bank system and enter real service scenarios such as transportation, education, and medical treatment, reaching C-end users and generating frequent applications.”

In the meantime, the financial institutions will be using different strategies for the e-currency implementation.

Whilst some banks will be working with the telecom companies to provide hardware-based solutions that will run electronic currency wallet systems right out of the SIM cards of mobile phones, others have chosen a cloud-based infrastructure perspective using mobile applications for implementation.

According to the article, the pilot program in Shenzhen will be carried out in two phases. The testing will start on a micro-scale before the end of this year with a few participants in each city and then will now be scaled up by next year.

As for Suzhou, although it remains unclear whether the city will be involved in the pilot project, earlier reports from November show that a state-backed fintech company was looking for blockchain and encryption experts in Suzhou. The fintech firm, founded by the PBOC’s digital currency research institute, is said to be responsible for the research and development of DC/EP, as well as offering support for testing the new currency.

Following the news, it is clear that China has capitalized on its efforts to embrace financial technology this year, which may have been prompted by Facebook’s own digital currency project called Libra. Nonetheless, this pilot will make the central bank the world’s first central bank to issue a digital currency, which has been underway for several years.

Chinese Region Hainan to Invest 1 Billion Yuan to Foster Blockchain Development

China’s interest in the blockchain technology continues to grow and the Hainan Free Hainan Free Trade Zone (FTZ) committed to invest 1 billion Yuan to stimulate local businesses.

According to local news outlet Xinhua Net, Hainan’s dedicated economic pilot zone has pledged to foster businesses in the blockchain industry by incentivizing talent and promoting the technology’s implementation in sectors like housing, healthcare, tourism and trade.

Hainan is the first blockchain pilot zone and will be based in the Hainam Resort Software Community. According to Wang Jing, the head of the department, this is also the first pilot to be approved by the local government.

The fostering measures include a fund worth 1 billion yuan, approximately $142 million. The announcement sees Hainan fall in line with various other Chinese provinces which have confirmed financial support for blockchain in recent weeks and months.

In general, the Hainan Free Trade Zone is a pilot economic area established by President Xi Jinping in 2018. The plan set out to make the island a free trade zone by 2020 and eventually turn into a free port by 2025.

Blockchain continues to be a hot topic in China and for Chinese officials with endorsement of technology application. However, the Chinese government remains vigilant on trading activities, iterating their stance that trading needs to be monitored and sanctioned.

In a comprehensive plan to utilize blockchain technology and big data, the government aims to facilitate the development of secure and trusted data sharing and digital governance.

The Hainan zone has seen an influx of blockchain companies, including two major cryptocurrency exchanges in Huobi and OkEX. In total there are over 100 blockchain businesses that joined the Hainan Resort Software Community.

Among the latest funds to come from the local industry was a $140 million injection from OK Group, the parent company of trading platform OKCoin. Prior to that, the government of Guangzhou also said it would inject 1 billion Yuan into the industry.

Shenzhen Investigates Fraudulent Activities Around Crypto Trading

The government of another Chinese city – Shenzhen – is now investigating cryptocurrency exchanges, who are reportedly operating illegally in the city.

According to local reports published on November 22nd, the finance bureau of Shenzhen municipality has identified 39 undisclosed cryptocurrency exchanges for inspection. Last week, the Shanghai government had carried out a similar investigation.

The investigation will also include participation from the Shenzhen branch of the People’s Bank of China (PBoC), the country’s central bank, as well as the Economic Investigation Bureau of the Municipal Public Security Bureau and the Municipal Communications Administration.

Meanwhile, the authorities will inspect cryptocurrency exchanges for illegal activities, including money laundering.

Following a rough translation of the report, the operation is to be carried out by focusing on three important activities:

“[…] first, providing virtual currency trading services or opening virtual currency trading places in China; second, providing service channels for overseas virtual currency trading places, including services such as drainage and agency trading; In the name of the sale of tokens, raise funds for investors or virtual currency such as Bitcoin and Ethereum.”

In addition to that, the local authorities should conclude all inspections by November 25th, according to the reports. If any exchanges are found to be violating rules, they will be required to shut down their businesses. Earlier reports hinted at the Shenzhen city targeting other entities beyond exchanges.

Last week, a similar investigation had been carried out in Shanghai by the government presiding. Cryptocurrency exchanges underwent inspection, whilst the government focused on businesses that conduct cryptocurrency trading, token sales, and distributions of tokens from overseas initial coin offerings.

Meanwhile, cryptocurrency speculation has risen in China among the recent promotion of blockchain tech by the country’s president Xi Jinping. However, after publicly voicing support for blockchain technology last month, Chinese media issued warnings not to confuse the policy for endorsement of phenomena such as Bitcoin.

China appears to be taking fresh steps to crack down on the cryptocurrency sector. Earlier this month, Chinese social media site Weibo banned the official accounts of cryptocurrency exchange Binance and blockchain project Tron Foundation, citing “violations of laws and regulations and the relevant provisions of the Weibo Community Convention.” However, the Weibo accounts of cryptocurrency exchanges Huobi and OKEx are still intact.

Respectively, all three cryptocurrency exchanges denied rumors police had raided their offices in Shanghai or that they had closed their Shanghai outposts.

“We have heard of this from some media reports. However, we have not received any specific instructions at this point,” a Huobi representative said.

On that note, Binance CEO Changpeng Zhang praised the government’s initiative as he saw the move as an effort to clean up the industry of scammers and fraudsters.

New Blockchain Alliance for International Trade and Financing with Shanghai Authorities

Local Shanghai government has partnered up with financial institutions to establish an alliance in Shanghai’s E-port area to boost the use of blockchain for global trade.

At the China International Import Expo, which took place today on November 7th, the Shanghai Municipal Commission of Commerce, Shanghai Customs, and representatives of 6 bank branches in the city — including the People’s Bank of China and Bank of Communications — have collectively signed an E-port blockchain alliance.

According to the announcement, this new alliance aims to make use of blockchain technology to help the city with its international trade. Prior to this, Chinese President has taken a strong stance for the blockchain technology and urged the country to take the lead role in the industry.

Chen Huifang, professor at the College of Information Science and Electronic Engineering of Zheijiang University, noted that decentralized and distributed accounting features, that promotes information sharing, will ultimately facilitate international as it will help improve the efficiency of customs clearance as well as reduce the cost.

Ye Jian – an official from the General Administration of Customs of Shanghai –  noted that the alliance serves as another move under China’s vow to optimize ist business environment.

“This is the first blockchain application project in customs and the first service project for the CIIE. China upholds multilateral trade and constantly improves its business environment by seeking technological innovation,” said Ye.

Shen Weihua, deputy director of the Shanghai Municipal Commission of Commerce, explained that blockchain technology has already been applied to several business areas that are involved in Shanghai’s international trade, which include digital insurance, digital supply chain, Internet of Things (IoT), and intelligent manufacturing.

He further added that blockchain technology has been successfully implemented in the newly launched cross-border yuan trade financing services for Shanghai’s single window system. The application helped solve information imbalance issues during the process of trade financing.

According to him, the city’s “single window” services platform integrates to date 10 major functions, with 22 departments covering all regulations and major procedures in international trade.

Previous reports show that a pilot blockchain system was also trialed for cross-border financial services in Nanning, South China’s Guangxi Zhuang Autonomous Region, this October.

Qi Hong, vice director of China Construction Bank’s Shanghai branch, emphasized to reporters that the technology remains in its early experimental phase in the country, outlining that:

“We now use blockchain in sporadic financial products instead of the whole finance industry chain, and the public doesn’t have a sound understanding of the technology when it comes to financing. But I think the government’s call for blockchain construction will help push the technology’s application in a more comprehensive way.” 

Meanwhile, China’s President Xi Jinping has recently stated that the adoption of integrated blockchain technologies is pivotal to promoting tech innovation and industry transformation in the country. He urged the country to accelerate blockchain adoption and assume the role of leadership in the industry.

Several from the crypto industry speculated that it was the President’s speech that triggered the spike in the price of Bitcoin (BTC). Currently, The People’s Bank of China is working on launching the first official digital currency soon.

China’s Central Bank Will Start Certifying Blockchain Platforms

The People’s Bank of China – the country’s central bank – has announced the launch of a new process for certifying blockchain platforms.

The new verification system, named the ‘Certification of Fintech Products’,  will certify 11 types of financial technology hardware and software that are widely used for digital payment and blockchain services.

On October 26th, the central bank released the first list which includes fintech products that could be used in both front-end and bank-end development for digital payment services. Currently, the new certification system covers all the products that could be involved in digital payment technologies, including point-of-sale mobile terminals, embedded application software, user front-end software, as well as security carriers and chips.

Notably, a specific fintech item included on the list of 11 products is trusted execution environment (TEE), which is a technology that can assist in the establishment of a “consortium blockchain network and verifying blockchain transactions in financial transactions use cases,” according to the filing.

For reference, giant tech company Microsoft filed for two patents in August 2018 to use similar type of technologies with the goal to improve the security and capacity of its blockchain services offerings.

Furthermore, blockchain platforms will be granted a Certification of Fintech Product (CFP) by the central bank only if their products meet the required checks to pass such as prototype examination and on-site checks. In addition to that, the certificate will be reviewed and renewed every three years.

Respectively, during the three year period, the authorities in charge will conduct random inspections on any step of the production process to ensure compliance. Additionally, institutions will be allowed to stamp the certifications on their logo. However, it is not allowed to use the certification as a means to directly promote products or for advertising itself.

The news follows China’s recent praise of blockchain and cryptocurrencies as a whole, with the President Xi Jinping urging the country to accelerate blockchain adoption, noting that it can and will be a big part of any upcoming technical revolutions.

 “[Blockchain will play] an important role in the next round of technological innovation and industrial transformation. Greater effort should be made to strengthen basic research and boost innovation capacity to help China gain an edge in the theoretical, innovative, and industrial aspects of this emerging field,” stated President Xi Jinping.

The central bank is currently working on developing the country’s own digital currency, which will launch soon. The bank forsees the national digital currency boosting the digital payment industry, touting its own coin’s security features and off-line transaction ability as superior to commercial products offered by China’s Alipay and WeChat Pay.