China writes blockchain and digital currency into nation’s future

For the first time, the words blockchain and digital currency have been officially written into China’s blueprint for the next half decade. The National People’s Congress published the 14th five-year plan — a guiding document for the country’s future social development and economic growth — after the curtain dropped this month on Lianghui, or “two sessions,” the most important parliamentary meetings in China.

With a focus on digital transformation, China is expected to invest more in technology research and development, including blockchain, with municipal and provincial governments following the national playbook and customizing it for their own local five-year plans. 

Last month, Tsinghua University, one of the top universities in China; Blockchain Service Network (BSN), a national blockchain-based platform project; and Huobi Research Institute, a research arm of Huobi, one of the biggest crypto exchanges in the world, released “The Blockchain Industry in China-2020 Annual Report,” which examined the developments of blockchain in the past year and predicted the future of blockchain and digital currency in China. 

Blockchain mentioned in China’s five-year plan for the first time 

China’s 14th five-year plan, which covers 2021 to 2025, has a whole chapter on digital transformation in every sector of Chinese society ranging from real industries to governmental administration. 

In a chapter called “Accelerating digitalization development and building a digital China,” the government pledged to “strengthen the innovative applications of key digital technologies” and “accelerate digital industrialization,” and mentioned the term “blockchain technology” for the first time in a five-year plan. “We will foster and strengthen emerging digital industries, such as AI, big data, blockchain technology, cloud computing, and cybersecurity,” the document said.

A content table of the chapter further pinpoints China’s blockchain technology targets for the next five years, including the development of smart contracts, multiple-consensus algorithms, asymmetric encryption, and distributed fault-tolerance mechanisms. The plan also describes the application of blockchain in China, especially  developing blockchain as a service platform using consortium blockchain for fintech, supply-chain management, governmental affairs, among other fields of application solutions. 

Blockchain as part of the new infrastructure 

China’s plan also emphasized development of “new infrastructure” to facilitate the nation’s digital transformation, intelligent upgrading, and technology innovations. 

Unlike China’s references to “infrastructure” in the past, which meant railways, highways, airports, seaports or other large construction projects, China’s mentions of “new infrastructure” now refers to the the tools, processes, facilities and technologies that support the creation, use, sharing and storing of information, including building more 5G base stations and high technology-backed governmental services terminals. In April 2020, the National Development and Reform Commission clarified the scope of technologies facilitating “new infrastructure.” Blockchain was officially named as being part of that list, alongside 5G, artificial intelligence and cloud computing.

Blockchain is a unique infrastructure example however, because its utilization is less clear than that of other technology on the government’s list. The purpose of 5G, for example, is to achieve a more speedy broadband cellular network. Blockchain, wrote the authors of “The Blockchain Industry in China-2020 Annual Report,” is a technology that could combine with other technologies to create new applications. 

The Tsinghua, BSN and Huobi-coauthored report offered an example about the combination of AI and blockchain: AI’s development requires real-time sharing of a large volume of documents, hence the addition of blockchain will not only be conducive to more secure analysis of big data, but also can significantly improve the level of trust on the platform, achieving a more trustworthy AI development model as a result. 

Ramping up new infrastructure is an imperative on a much tighter schedule than five years, according to the annual report. Governments are honing their policies and financial budgets to make major new infrastructure deadlines within the next two years. 

The annual report summarized the policies and plans to foster new infrastructure developments in 10 provinces, including Shanghai, Beijing, Chongqing and Guangdong. By 2022, the Guangdong provincial government plans to invest 666 billion yuan or US$102 million in total new infrastructure. Chongqing, the youngest municipality located in southwestern China, plans to invest 398 billion yuan or US$61 billion by then. Shanghai plans to invest 270 billion yuan or US$41 billion as well.

Blockchain facilitates governmental affairs  

Improving the development of digital government is a core goal in the 14th five-year plan. China aims to build smart cities and establish national public-data resource systems, ensuring the security of public data and at the same time enabling the sharing of data across governmental departments, management levels and regions. 

According to the annual report, about 60 blockchain-based governmental affairs applications have been put into use in 2020, including judicial, administrative-approval and electronic-license services. 

Beijing is leading the way in applying blockchain technology to governmental affairs. In July 2020, Beijing’s local government published a 145-page blueprint of blockchain-based innovations and applications in governmental affairs. By the end of that year, Beijing had 12 blockchain-based governmental affairs projects and about 140 applicable scenarios. One example is the blockchain-based government service terminal located in Haidian district. It is the first of its kind in the nation that combines different governmental services into one machine, including the capability to renew passports, register nurse-practitioners, and license the operations of a business. 

“Blockchain technology has gradually entered the attention scope of governments,” wrote the authors of the annual report. “The directions involved in the global blockchain government projects that have been, or are being implemented, include digital identification, electronic administration, judicial depositing, administrative examination and approval and other directions.” 

China keep working on its CBDC program 

Last but not least, China’s 14th five-year plan also included the development of digital yuan, the goal of the central bank’s “Digital Currency, Electronic Payment” (DCEP) project. In the chapter, “Comprehensively deepen financial reform and build a high-level socialist economy market,” it mentioned digital currency once, saying that China “will steadily advance research and development of digital currencies.” 

Even though only one sentence showed up in the 14th five-year plan, many provincial governments have already announced plans and trials of the DCEP project’s digital yuan.

Beijing announced in its municipal-level five-year plan that it would take the lead in building a number of digital-economy applications to be tested in urban sub-centers, including Winter Olympics parks, Daxing International Airport and other regions. In fact, Beijing already went through a large-volume DCEP testing in February 2021, and digital yuan hardware wallets embedded in ski gloves were tested by invited guests in January and expected to be used in the 2022 Winter Olympics in Beijing. 

Shenzhen also mentioned digital currency in its municipal-level five-year plan. The Shenzhen government will further support the development of digital currency and will lead the city to be an innovative pilot zone. Shenzhen will also take the lead to build the rules and regulations on digital currency that could apply to other cities and provinces in the future. 

According to the annual report, at least 48 central bank institutions around the world have carried out CBDC research or proofs of concept, of which at least 36 have tested retail CBDCs projects. In 2021, it predicted that research about CBDCs will continue to be all the rage, but most great powers will not execute in full implementation.

Xitian Huang also contributed to the story.