Shanghai forms blockchain alliance with 6 banks for trade finance

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The municipal Shanghai government has partnered with China’s central bank and five other financial institutions to create an alliance for blockchain-based trade finance.

Why it matters: This is the latest move for Chinese authorities as part of a renewed determination to fast-track blockchain development.

  • The blockchain alliance is the first blockchain application project in customs and the first service project for the China International Import Expo (CIIE), according to Ye Jian, official from the General Administration of Customs of Shanghai, as cited by the Global Times.

Details: Shanghai Customs, the Municipal Commission of Commerce, and representatives from six banks, including the People’s Bank of China (PBOC) and Bank of Communications, inked a Blockchain Alliance proposal for the city’s e-port area during the CIIE on Thursday, state-run Global Times reported.

  • PBOC’s Shanghai branch and the municipal commerce commission said in a joint statement on Thursday that they expect blockchain to solve information asymmetries in trade finance and verify authenticity for trades, according to Reuters. Regulators also expect to tap into the technology to lower cost thresholds for trading institutions.
  • Blockchain’s use cases in finance is still in early stages in the country, said Qi Hong, vice director of China Construction Bank’s Shanghai branch. The technology is now being used only in “sporadic financial products instead of the whole finance industry chain,” said Qi. However, she expects the government’s push for blockchain development will help apply the technology more comprehensively.

Context: President Xi Jinping’s public endorsement of blockchain development in late October has spurred a slew of government-led initiatives.

  • Chinese authorities approved a cryptography law a few days after Xi’s remarks on blockchain, which will take effect on Jan. 1, 2020. The new law is expected to lay the ground for the adoption of blockchain applications including China’s planned digital fiat currency.
  • China’s central bank introduced new measures on Oct. 30 aimed at promoting fintech development, including blockchain, in Shanghai and the surrounding Yangtze River Delta region.