China vs US — A never ending race to innovation
Disclaimer: this blog post was put together for informational purposes only based on my review and analysis. This should not be construed as a solicitation, offer, or recommendation to acquire or dispose of any investment, engage in any transaction.
By Nassim Olive, CFA — Partner at Eterna Capital
The formal relations between China and the United States started with the signature of the Treaty of Wanghia back in 1844 [1]. This diplomatic agreement achieved between the Qing dynasty of China and the United States inaugurated a sinuous love and hate relationship between the two super-powers of today.
As an equity investor, a trader, a car maker, a phone producer, a farmer, a shop owner, or even an anarchist, we have all heard or been impacted in some shape or form by the ongoing economic conflict between China and the United States. Even though recent rumors are showing signs of a potential deal, the relationship between those two nations has always been complex.
In the hegemonic rivalry race towards winning the global leader spot, technology and blockchain are no exception.
China’s bullishness is staggering
On 24th October 2019, during a “study session” in front of some of the most senior members of the Chinese Communist Party, President Xi Jinping delivered a speech outlining the importance of blockchain technology and the need for China to make “greater effort” to develop and apply the technology across a wide range of industries and sectors. He is bluntly pushing for China to step up its efforts to gain an “edge over other major countries”.
This was a surprising announcement given the fact that the Chinese government has implemented a series of bans on activities surrounding cryptocurrencies since 2017. The restrictions were justified as a way to prevent investors from speculation that (they consider) would cause chaos in its financial markets. It included shutting down exchanges, trading platforms and halting cryptocurrency mining activities.
It might sound contradictory to link blockchain and cryptocurrencies, but as outlined in my previous blog post, the correlation between the two is close to perfect, hence difficult to ignore. This optimism has had a direct snap impact across the board, from shares of Chinese companies related to or using blockchain to Bitcoin price which recorded a historical daily gain at close to +42% (third largest) on the day before retracing some of its gains [2].
The US are trailing behind if not moving in the opposite direction
Recent comments from China can be viewed as part of the wider, ongoing “Trade War” between China and the United States. The competition between the two countries to develop and master a range of emerging technologies has been heating over the past few years. But when it comes to blockchain, the United States seem to be trailing behind. President Donald Trump and several US government entities have commented on the topic, the general sentiment is one of disapproval and fear. This has been quite surprising coming from the United States — a technological ‘avant-gardist’ nation.
Interestingly, President Xi Jinping’s recent remarks come a few days after Facebook CEO Mark Zuckerberg’s public hearing to the House Financial Service Committee. He warned that the United States would cede its dominance over the global financial system to China if it does not embrace new technological innovations such as blockchain and cryptocurrencies.
The general sentiment coming from US companies launching new blockchain related products is one of disappointment. Over the past few years, we have seen a number of projects halted, teams moving to more friendly jurisdictions, and a lack of clear guidance. It is fair to say that some progress has been made to determine “what you can’t do” but much to the dismay of many entrepreneurs, not enough clarity has been provided to determine “what you can do”.
What is next?
Recent comments from President Xi Jinping reignited interest in blockchain in China. Several initiatives are expected to be rolled out in the near future:
1) Top Chinese universities rolled-out classes related to blockchain;
2) Local governments are looking to pour significant amounts of money to develop new and existing projects;
3) The People’s Bank of China or PBC (China’s central bank) has been working on rolling out its own state-backed cryptocurrency, with one official indicating that the launch would be soon.
In the wake of such optimism, it is important to point out that China’s vision of blockchain remains unclear and could be very different to that of crypto enthusiasts. Decentralization has never resonated as a positive to the Chinese government and the development of its own digital version of the yuan will most likely be built and controlled on a centralized infrastructure.
It is time to wake up
Regardless of how you interpret China’s approach, President Xi Jinping’s remarks are very positive for blockchain as a technology and a strong move to position China at the forefront of blockchain innovation.
While China’s push for more commercial and enterprise use-cases of blockchain across different sectors is one to watch, we are yet to determine if this approach delivers better results compared to the open financial system cryptocurrencies have offered.
We look forward to seeing the United States reaction to this bold move. People are asking: “When will the US wake up?”. While we are at the early stages of this technological innovation, a new frontier of the trade war is emerging and the United States will have to respond quickly.
References
[1] Source: wikisource — https://en.wikisource.org/wiki/Treaty_of_Wanghia
[2] Source: coinmarketcap.com — 25th October 2019.
