China is having honeymoon with Blockchain but crypto remains off limits
As many people are aware, when doing business in China, the number one thing you must be well informed about is government policy. It is even truer in the cryptocurrency world. Last September, the Chinese government made it abundantly clear that they are not crypto friendly when they rolled out policies banning cryptocurrency exchanges and ICOs. However, in a conference at the end of May, President Xi called Blockchain a “Breakthrough” technology. That statement raised a lot of people’s eyebrows. Many people asked me, what does that mean? Is China ready to change its attitude towards cryptocurrencies? My answer is no and not even for the foreseeable future. Let me explain why.
I just came back from Shenzhen several days ago. There I hosted a blockchain forum which was part of the 2018 China VC and PE Forum. The forum has a bit connection with the government. Although it was a forum about blockchain, several words, such as “exchanges” and “cryptocurrencies” were banned from being using in the PowerPoint presentations. I remember one speaker complaining that in order to follow the rule, he had stayed up until 2AM the night before modifying his slides. Another aspect was that one big topic of the forum was how to implement blockchain without cryptocurrencies, for example, applications in IoT or logistics. Two takeaways, one is that we will see more private chains adopted by companies and even government agencies. The second is that cryptocurrencies still have zero position on the government’s agenda.
I attended Bitnext: blockchain forum as moderator on June 10, in Shenzhen.
Another incident occurred that helped to shape my opinion. Early in April, a bar called Carmel-by-the-Sea opened in Beijing. It claimed to be the first bar in China to accept cryptocurrencies such as Bitcoin and EOS as payment. On June 11, the owner was asked to stop by the office of the People’s Bank of China, the country’s central bank. It was the kind of invitation that no one dare say no to. After the meeting, Carmel-by-the-Sea immediately stopped all attempts in the use of cryptocurrencies. According to my source, during the meeting, the bank’s officers emphasized that in China, Renminbi is the only legal fiat currency. No foreign currency or any other form of currency can be accepted as payment.
Ower of Carmel-by-the-Sea posted a selfie before your meeting at People’s Bank of China
The conclusion is that even as the Chinese government is embracing blockchain, cryptocurrencies remain another story. And, based on what I have observed, it won’t be legalized anytime soon. It is easy to understand. First, China has been working on strengthening Renminbi’s international status for many years. To have other forms of currencies competing on its home turf might not fit into that strategy. Second, China has strict capital controls. With cryptocurrencies, it would be extremely difficult to keep that high degree of control in place. Third, the prices of cryptocurrencies are still very volatile. It could become a big risk to financial stability if the use of cryptocurrencies took off. We might even see the Chinese government issue a fiat token sooner than they would legalize the cryptocurrencies, since a blockchain technology backed token can help the authorities exercise even greater control over the monetary system.