The Rise of Chinese Blockchain

This article is an excerpt from Silicon Road's China's Blockchain Landscape Report which is available for subscribers to download.

The Rise of China's Blockchain Scene

Interest in blockchain in China has exploded over the past four years, fuelled by government support policies encouraging investment into strategically important technologies.

Blockchain refers to a distributed database containing a list of records known as 'blocks'. Information is designed to be securely stored so that records are unchangeable by a single party. Instead, consensus among network users determines whether information should be altered. Many blockchain projects also make use of smart contracts, which are digital agreements that execute themselves when criteria are met.

Fully decentralised blockchain networks are prohibited in China by network security regulations, which require data to be accessible to regulators. Networks are instead run by trusted nodes, or by member organisations of blockchain alliances.

More important than the internet?

Blockchain was written into the State Council's 13th 5-year plan in 2016. This led to significant media coverage on the possibilities offered by a blockchain-powered future. The number of articles mentioning blockchain published by leading newspaper 'the People’s Daily' increased three-fold between 2017 to 2018 and in June 2018 state-broadcaster CCTV described the technology as “ten times more important than the internet” in an hour-long feature.

In October 2019, President Xi Jinping led a study session emphasising blockchain's "important role in the next round of technological innovation" essential in the race to "keep China at the forefront".

The central focus on the technology resulted in the governments of more than 30 provinces and regions to announce their own blockchain plans which provide support and investment to blockchain startups and enterprises.

According to a 2019 Deloitte survey of enterprises, 73% of respondents in China viewed blockchain as a top-five strategic priority, compared to 56% in the U.S. In a similar 2018 survey, 49% of respondents in China said blockchain technology was already used in their organisations, compared to only 14% in the U.S.

The excitement around the technology has pushed companies across sectors to publish plans and whitepapers on how they intend to incorporate blockchain into their businesses. Leading internet companies have also developed platforms to reduce the barriers to entry to launching blockchain-based applications known as BaaS (Blockchain as a Service).

Their efforts have been supported a government eager to facilitate the growth of a regulated and law-compliant blockchain sector. It has, at the same time, cracked down on financial scams and illegal fundraising under the guise of using blockchain.

With increased government funding and grants available to companies that file blockchain-related patents, the number of applications for patents in the category has increased substantially. Silicon Roads research shows a more than three-fold increase in blockchain-linked patent applications between 2017 and 2018. However, a report from BlockData in November 2019 found that a staggering 93% of blockchain patent applications remain pending. Financial incentives have encouraged greater numbers of applications, which are also used by startups to gain greater credibility in the sector. Increasing the quality and originality of blockchain research remains a key challenge for the sector.

Patent applications are dominated by China's leading technology companies, with Alibaba coming top with more than 210 patents awarded (though the total applied for is significantly greater). Intellectual property is used a key point of differentiation between BaaS Providers.

Guangdong Province leads in terms of the number of registered blockchain companies, followed by Beijing and Shanghai. All blockchain companies in China are required to register their networks, ensuring that all network operations comply with laws on network and data security. The majority of international blockchain protocols and platforms remain technically illegal in China.

This article is an excerpt from Silicon Road's China's Blockchain Landscape Report which is available for subscribers to download.