It’s been a decade since the GFC happened, which acted as the catalyst for Satoshi’s Bitcoin whitepaper, and it’s been about a year since ICOs were banned in China. But it seems as though the blockchain industry is growing from strength to strength in the Chinese tech ecosystem. There have been no noticeable signs of development slowing down. In fact, China was responsible for over half of the blockchain patents in the world last year.
Here are eight things I learnt about the Chinese blockchain ecosystem on Austrade’s recent mission to China.
1. Innovation is top down in China
This means that multi-billion-dollar companies are at the forefront of innovation in China. In fact, tech-giant Alibaba has the most blockchain patents in the world. Because of the way innovation is led in China, the rate at which the application of blockchain is developing is mind-blowing due to the money backing these projects.
During our stay in Shanghai, we had the privilege of getting a peek behind the scenes at billion-dollar tech companies to see what blockchain projects they were working on.
Ant Financial (creators of AliPay) kindly hosted us and took the delegation through a variety of projects they were working on. They refer to this stream of work as BASIC, which incorporates and combines the following technology:
- IoT; and
Tony Sun, director of global technology partnership and development, presented on its blockchain BAAS platform, which covers goods and food traceability, mutual insurance, lifestyle lease, cross-border remittance and supply-chain finance
Ant Financial also completed a near real-time cross-border remittance between a user on Alipay in Hong Kong and a pipeline user from Gcash on the blockchain. Tony said it took under six seconds, was extremely low cost, secure and regulatory compliant (KYC and AML).
They also tracked charity donations on the blockchain. Since January 2018 they have 37 charity organisations onboard, tracking 300 projects, 9.3 million donations and 48 million RMB ($9.6 million).
Ant Financial also worked with Fonterra in New Zealand and Blackmores in Australia to track supply chain provenance of Tmall Dairy Products on the blockchain. From the manufacturer in New Zealand through Australia and on to China, the products were tracked so customers in China could see product information via a QR code, with all information of supply stored on the blockchain.
China’s leading fintech unicorn, Dianrong, also took us through their latest blockchain project Trusted Account Payable (TAP). Utilising blockchain technology, the team at Dianrong are able to safely create an account payable that is tokenised. This allows users to break down the account payable into smaller pieces to be used in multiple ways: they can finance it, use it to pay someone and keep the third portion. The TAP can’t be duplicated and is registered the same way an AP is.
2. Check yourself (and protect yourself) before a copycat wrecks you(rself)
Many horror stories were shared about companies coming into the China market who didn’t file trademarks, IP and/or patents and ended up having to pay millions of dollars either to buy trademarks or pay legal fees to own the rights to their work.
China has a first-to-file trademark system so you need to ensure you’re covered as soon as possible, because if you don’t, it’s guaranteed someone will file before you do. It won’t stop people copying your businesses, but it will ensure you have registered your business, especially your website address.
Lots of companies are patenting their blockchain inventions too. Remember:
- Patents protect inventions;
- Trademarks protect your brands; and
- Copyright protects your source code.
Copyright will protect identical copy of the software but doesn’t stop them from amending the code and doing their own version.
3. Prepare to do business in China before you arrive.
It’s no secret that business is done on WeChat in Asia. However, ensure you’re prepped and ready to go so you can do business as soon as you step off the plane. This means:
- Design your business cards with QR logo and include this on the last page of your presentation;
- Translate WP, LP, Pitch and Presentation Decks into Chinese;
- Send all of your docs in PDFs on WeChat so you can send them on with ease;
- Take a photo of your business card and send that too;
- Learn how to scan a QR code and show your own; and
- Calls are also really good and clear on WeChat so don’t be afraid to make calls too.
4. Political stability is achieved through legal ambiguity
One of the first things you notice about China is the government moves in a way to always maintain social, political and economic stability which is achieved through legal ambiguity. We were often told there are rules, but they are not always enforced. You need to be comfortable with the ambiguity if you’re going to do business here. In fact, the tech is so advanced that the ability to enforce rules seems quite easy. Walking down the streets you notice cameras everywhere, and the tech is so advanced that facial recognition cameras can catch you for J-walking!
This is the main reason why ICOs have been banned, as they were threatening stability, but it is clear the market still moves forward. Crypto was banned because at the height of the craze, people were mortgaging their house to buy cryptocurrencies. So it’s not that they don’t want blockchain, it’s more that they want to regulate the space so they can control it.
And until they have regulation in place, it will be banned. The ban was against Ponzi schemes and pyramid funds, not the blockchain tech itself. Media outlets were also banned on WeChat, Huobi, Jinse Finance, specifically distributed information related to ICOs and events promoting them.
Another reason why the government banned ICOs was that they had no way of controlling foreign exchange. The exchange of foreign currencies is heavily regulated in China and buying crypto allowed local people to buy foreign currencies without going through the government’s foreign exchange system. If you want outbound investment Chinese investors need to go through the government outbound investment fund. However many have funds in the Cayman Islands or Hong Kong to make the investments.
However, this isn’t stifling innovation. Different provinces are in a race to become the hub of innovation for China, and in doing so, are supporting blockchain projects. Many are hungry to bring strong foreign blockchain projects to China. Funds are very keen on foreign investment, however getting money out of China is really hard so it’s not as easy to raise.
5. Despite our size, Australia has a strong blockchain offering
Coming together as a group of 30 blockchain teams really showed me just how much the blockchain community is growing in Australia.
From ADCA, the industry body who represents the local ecosystem, through to many different projects working on a range of business problems across a range of industries, including: Labrys, AgriDigital, Honey Digital, Secure Health Chain, Blockchain Centre, Ultimo Digital Technologies, BeefLedger, Civic Ledger, ArtChain Global, Castlecoin Foundation, and Hall and Wilcox.
6. Blockchain is thoroughly ingrained in China’s education system
Ten universities in China are teaching blockchain subjects and the government is really supporting graduates to open their own companies and innovate.
North China universities include:
- Tsinghua Uni’s blockchain finance research centre; and
- Remin University’s fintech and cyber security research centre, and they have an academy investment arm and have been investing.
7. Some fun facts about China, ICO and investment
- Many funds aren’t investing for the rest of the year, getting their finances in order and opening up new funds for 2019. It’s a really tough market to raise at the moment.
- Traditional VCs are more crypto savvy than Australian VCs and understand the industry very well.
- Globally, 92% of ICOs have failed since 2016.
- Development in the space is focused on bringing IOT, AI and blockchain to work together. Many companies are using AI to go through blockchain data and make sense of it.
- Tokenfunds are investing in ICOs because they get a bigger discount in the investment on private (more like a hedge fund). These include BitFundPE, FBG Capital, Fenbushi, BlockVC, and 8Decimal.
- No mass marketing of ICOs in China but many are doing it still.
- Of the seven projects Chinese VC fund Hashed have recently invested in, six of them were an ICO.
- To get around the ban on ICOs in WeChat, users are taking pictures of their sentence and sending it so the government can’t pick up on keywords.
8. The market is really tough right now — really tough
If you’re going to China to pitch your company, talk about the technology. Present your team and your partners and be sure to highlight big blue-chip companies.
The market is extremely tough at the moment and no one wants to be a lead investor. Those with money are waiting to see what’s happening the in industry. Word of mouth (WOM) is key so make sure you build your community and do meetups. Look on Reddit and Steemit, PR is key as it’s a credibility market right now.
Don’t take the first offer as it may cut out some others from investing. If you’re looking for events, look for ones with English translated websites. Maybe go to traditional investors — security token offerings (STOs) are more palatable. They’re looking for safe projects. IDG Capital just invested $20 million in Dexon, a block lattice chain reaching one million transactions per second.
The author of this article traveled to China on an recent Australian government Austrade mission.