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.

China President Calls for Blockchain Development Acceleration

Xi Jinping, President of the People’s Republic of China and General Secretary of the Communist Party of China held a study session on blockchain technology on Thursday, October 24th.

The President spoke as part of the 18th collective study of the Political Bureau of the Central Committee on Thursday in Beijing, stating that blockchain technology has a wide range of applications within China such as financing businesses to mass transit as well as diminishing poverty.

The meeting, that took place on Thursday, is part of a workshop series held regularly by the Central Committee and was aimed at studying the current state and future development of blockchain technology. Presumably, it is the first time the party’s central committee collectively studied blockchain.

During the meeting, Xi Jinping stressed that the country’s communist party should regard blockchain as a core technology for important innovative breakthroughs and should commit to accelerating the development of the technology and subsequently aim at taking the leading position in the emerging industry.

In addition to that, China needs to accelerate the standardization of blockchain research, which will, in turn, give the country more power in setting rules and standards internationally.

 “We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”

He further noted that it would be “necessary to implement the rule of law network” into existing and future blockchain systems. On that note, the President argued for a top-down approach concerning implementation, calling for guidance and regulation. Xi said testing of the tech should be widespread, including the investments in training platforms and “innovation teams” before implementation.

His remarks also alluded to creating a platform – Blockchain+ – which would aid personal development such as education, employment and food and medicinal safety, among other basic needs.

Meanwhile, Xi’s push for blockchain adoption comes against China’s long-standing aversion to cryptocurrencies. Since a 2017 decision by the People’s Bank of China, cryptocurrencies are banned in the country, quickly followed by exchanges.

However, the central bank is currently working on developing its digital renminbi, which will launch soon and accordingly might “re-wire [much of the world].”

Alibaba and Tencent Among the First to Receive China’s Digital Currency

As China’s central bank gets ready to launch its own cryptocurrency, it has been reported that seven institutions will be amongst the first to receive state-issued cryptocurrency.

According to a report published on August 28th, former global head of financial strategy for China Construction Bank Paul Schulte, together with another anonymous source, have disclosed the information and have confirmed that seven institutions will be indeed be the first ones to receive China’s CBDC, which they are calling DC/EP — short for Digital Currency/Electronic Payments.

The first beneficiaries of China’s CBDC are Alibaba, Tencent, China Construction Bank, the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and Chinese banking association Union Pay. An eighth beneficiary is said to join the other seven, however its name hasn’t been disclosed yet.

According to the sources, the seven institutions will be responsible for “dispersing the cryptocurrency to 1.3 billion Chinese citizens and others doing business in the renminbi (China’s official fiat money).” Notably, China’s central bank “hopes the currency will eventually be made available to spenders in the United States.”

Meanwhile, this strategy reminds of other similar projects relating to cryptocurrency distribution, namely Facebook’s Libra initiative. For instance, Facebook’s planned Libra cryptocurrency will be backed by a basket of currencies issued by central banks with support from companies such as Mastercard and Uber in the United States, Vodafone in England and Mercado Pago in Argentina.

Another similar potential project has been reported last week by the Bank of England governor Mark Carney who suggested the idea of a new currency backed by a number of central banks to replace the U.S. dollar as the global reserve currency.

Moreover, China may issue its CBDC before Facebook rolls out Libra, according to official sources. The anonymous individual confirmed that the technology behind the cryptocurrency has been ready since last year and it could launch as soon as November 11th, which is knows as Singles Say – China’s busiest shopping day.

When launched, Libra’s announcement actually sparked discussions among Chinese financial regulators, encouraging the CBDC designer to rethink various models which can involve more non-governmental institutions in the development and issuance process. Many regulators, including the PBOC, have reiterated the need for Libra to be put under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.

The Chinese officials recognize the difference between cryptocurrencies such as Bitcoin and CBDC. They claim that the CBDC is very different from Bitcoin. The ledger is centralized and the ledger must adopt real-name verification and residents will be able to exchange the digital currency in commercial institutions.

Following this news, neither People’s Bank of China nor any of the seven institutions have responded to requests of denial or confirmation. However, it aligns with key statements made by Mu Changchun, deputy director of the Paying Division of the People’s Bank of China (PBOC) and the new head of China’s cryptocurrency research lab at a speech on August 10th at the China Finance 40 Forum.

At that time, Mu described the central bank’s “two-tiered” system, where the bank would create the cryptocurrency and a small group of trusted commercial businesses would “pay the central bank 100% in full” to be allowed to distribute it.

He stated at that time:

“The central bank’s digital currency can be circulated as easily as cash, […] which is conducive to the circulation and internationalization of the renminbi.”

China Close to Launching Its Own Digital Currency

China’s central bank – People’s Bank of China (PBoC) – has announced that is nearly ready to issue its own sovereign digital currency, according to a senior official.

Mu Changchun, deputy director of the People’s Bank of China’s payments department, has revealed that the bank’s virtual currency was “almost ready” for release. The news was announced by Mu at the China Finance 40 Forum over the weekend.

According to the news report, researchers have successfully developed a prototype that adopts blockchain architecture after five years of research and it is “close to being out.” However, details about the launch have yet to be known.

China’s central bank will reportedly launch its digital token through a two-tier system, with PBoC on an upper level and commercial banks on a secondary level as legitimate issuers.

Mu further explained that issuing a digital currency using a pure blockchain architecture would be difficult to achieve in a country as big as China due to the fact that retailers require high concurrency performance. The bank said it wouldn’t rely on blockchain exclusively, and would instead maintain a more neutral stance on which technology it decides to use.

According to Mu, this will improve accessibility, enhance adoption rates amongst the public as well as promote innovation amongst commercial entities. In addition to that, the digital currency is designed to be suitable for small-scale retail high-frequency business scenarios.

Mu has stressed that the institution’s aim is for the digital currency to replace M0, or cash in circulation, rather than M2, which would generate credit and impact monetary policy. The digital currency would also support the Yuan’s circulation and internationalization, he said.

According to patents registered by the PBoC, consumers as well as businesses would download a mobile wallet and exchange their yuan for the digital money, which they could use to make and receive payments. It is further indicated the wallet would store a digital currency issued by the central bank or any authorized central entity that is encrypted like a cryptocurrency with private keys, offers multi-signature security and is held by users in a decentralized way.

Currently, there are 52 patents filed under the name of the Digital Currency Research Lab of the PBoC, with the latest published in October 9th 2018, having been submitted on March 26th 2018.

Meanwhile, the news comes as global central bankers take a skeptical view on Facebook’s cryptocurrency project – Libra. Earlier in July, former governor of the PBoC Zhou Xiaochuan claimed that Libra poses a threat to payments systems and national currencies and he believed it should come under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.