Government initiatives and policies to create a less hostile blockchain space in China have led to an influx of money and companies, old and new. The blockchain hub incentives offer a window of opportunity to those firms previously banished from the domestic market in the crypto purge of 2017.
President Xi’s October remarks on the significance of blockchain and the continued talk of a digital fiat currency elevated excitement surrounding the technology.
Hainan, China’s smallest and southernmost province, found itself in the middle of the newfound blockchain fervor. In December, the Hainan government announced a series of new measures to attract talent and funding to boost the adoption of the technology. The government also inked multiple partnerships with countries along the Belt and Road at the Hainan Free Trade Port International Cooperation Forum on Digital Economy and Blockchain in the provincial capital Haikou.
Blockchain and digital asset firms are also taking notice of the opportunities. Tech companies and startups are flocking to Hainan. Those previously forced out of the sector see a window of opportunity to gain legitimacy.
China’s new blockchain hub
The island province has gained strategic importance in recent years, given its vicinity to Southeast Asia and isolation from the rest of China. The province’s situation allows the government to more easily conduct blockchain pilots as well as set up financial regulatory sandboxes. These are significant as China views blockchain as a potential leg up in the global tech race.
President Xi announced the free trade zone last April with a view to developing tourism, modern service industries, and high-tech industries, including blockchain.
Hainan is the newest of the 12 special zones and the largest in size. The province is also home to China’s first blockchain testing zone, officially launched last October.
According to Yang Chunzhi, general manager at China Hainan Ecology Software Park, the first half of 2018 saw difficult discussions on how to set up the testing zone. Blockchain had gained a bad rep in China, he said, adding that there were other issues with technology, talent, and applications.
However, Yang said, speaking at a conference on international cooperation, it is evident that the development of the policy framework for blockchain trails far behind advances in the market and the technology. The testing zone is meant to solve this.
On the research front, there has been an ongoing collaboration with educational institutions like Oxford University’s blockchain research center and with companies like Huobi. They also help train tech talent as well as government officials, Yang said.
The newly announced promotional measures for blockchain include an RMB 1 billion ($142 million) fund dedicated to attracting startups and talent to the special zone. Over the past year, Hainan has attracted over 70 blockchain companies including Baidu Blockchain Lab, 360 Blockchain, Xunlei Blockchain, OK Group, and Huobi Group.
A platform for China reentry
Hainan’s efforts to build a pro-blockchain environment is attracting many who hope to get in on the action.
China brought in a blanket ban on crypto activities, including initial coin offerings and digital asset exchanges in late 2017, creating a hostile environment for blockchain and cryptocurrency companies. Many major trading platforms, including Binance, Huobi, and OkCoin, shifted operations overseas. Recent optimism in the sector has prompted many companies to rethink their China strategy.
On top of the billion-yuan national blockchain investment, OK Group, the operator of the OkCoin exchange, announced a $140 million deal with the Hainan government on Dec. 1 to set up an “Asia Pacific Innovation Center” in the province to help build up the blockchain ecosystem.
Formerly Beijing-based, OkCoin moved operations to California in 2017.
Huobi, another significant exchange, moved to Singapore following the ban before officially setting up a China headquarters in Hainan in late 2018. The company has established a close relationship with the Hainan government. The company co-organized the forum in early Dember and took on a substantial role in the event. Huobi was also the only private company to sign the cooperation agreement with BRI countries.
Crypto exchanges willing to work with the government on blockchain initiatives are getting the nod to return to the coveted China market, Matthew Graham, chief executive at Sino Global Capital, noted in a tweet.
Companies woo the local government with a generous investment with the promise of bringing talent, technology, and resources to the island to get a foot back in the door of the Chinese market. In turn, opening up to startups and talent allows the island to boost its hi-tech sector and the development of a blockchain ecosystem in line with national plans.
However, not everyone is sold on Hainan’s blockchain ambitions.
“It’s hard for Hainan to retain talent given there are a lot of opportunists and adventurists and people who want to benefit from favorable policies,” (our translation) Gu Qianfung, chief technology officer at BTC Media Asia Pacific and a prominent Chinese blockchain commentator, told Chinese media.
Gu pointed out that Hainan has a relatively weak foundation for these industries. Its economy had long been relying on tourism. The nascent blockchain industry is still a long shot from competing against hubs like Singapore that have a mature digital economy.
China has been rapidly accelerating the development of blockchain and is establishing regional hubs in cities like Haikou and Shenzhen, allowing it to test out new blockchain applications as well as regulatory frameworks. To create these hubs, the country needs more favorable policies to attract a slew of blockchain and digital asset companies, as well as talent.
The plan is not only is a step toward China achieving its ambitious blockchain goals but also a golden opportunity for companies that have long yearned to grow a presence in the market and build a rapport with the government. In terms of its actual effectiveness, it is still too early to say.