China on a Blockchain? Maybe in 2018

 Chun Yin Cheung is a partner in PwC China's risk assurance  practice, based in the Shanghai office, and a committee member of  VeChain Foundation. The following article is an exclusive contribution to CoinDesk's 2017 in Review, and represents the author's personal view, not necessarily the opinions of his employer. 

 In 2018, I forecast China will surprise the world (again) and change the crypto world.   I personally believe in 2018 China will be the first major country to  launch a central bank digital currency (CBDC), and that we will also  see a large-scale blockchain implementation in the retail and logistic  industry with a blockchain solution developed by Chinese companies. Now, I'll unpack my predictions. 

A Chinese CBDC

Although cryptocurrency exchanges were banned from China in September this year,  the country has always taken a positive attitude toward central bank  digital currency and blockchain, actively carrying out relevant  research. In Feb. 2016, for example, People's Bank of China (PBOC) president  Mr. Zhou Xiaochun admitted during an interview that the Chinese  government has been investigating the adoption of CBDC for a long time.  On Dec. 27 of that year, blockchain was written into  the "13th Five-Year Plan for National Informatization." The government  affirmed the value of blockchain, and it has since risen to the level of  our national science and technology strategy. Technically, China is ready to launch the first CBDC, as the PBOC has  set up a dedicated digital currency research group in 2014 to study  both digital currency issuance and the business operation framework that  would need to support the launch of such technology. In January 2017, China's central bank successfully tested the digital notes exchange platform. According to a paper published in Tsinghua Financial Review, a  digital currency was used to exchange notes between commercial banks,  including Industrial and Commercial Bank of China, Bank of China,  WeBank, Shanghai Pudong Development Bank and Bank of Hangzhou. In July, the Central Bank Digital Currency Research Institution officially began operating as a separate business unit within PBOC. 

A strategic play

Strategically, the launch of the Chinese CBDC is in line with the  Belt and Road Initiative, an integrated upgrade of China's international  cooperation with the Eurasian Economic Union, China-Japan-South Korea  Free Trade Area and other areas. It enables China to exert its geopolitical advantages, and is an important platform for cooperation. Transactions with digital currency are more efficient and convenient,  eliminating the third-party reconciliation and the automated  implementation reducing payment costs and error rates. It increases the  chances other countries would pay with RMB in transactions, which  increases the liquidity and internationalizes the RMB. From risk management perspective, the Chinese CBDC may first be  launched through a pilot program to manage the risk and public  expectation. A Chinese CBDC may first be limited to banks for intra-bank  transactions so that existing foreign exchange and capital controls can  still be imposed without radical changes. It also avoids the worry that RMB paper notes or metal coins will be  abolished (like what India did) and lead to financial instability. The  general public and commercial world also needs more time to understand  the technology and develop the associated applications. 

Business progress

I also expect we will see some high-profile adoptions of blockchain technology in retail and logistic companies. Startups like VeChain launched the first commercial blockchain  platform through which a Chinese state-owned enterprise is now tracking  and managing red wine imported from overseas. Customers can use their  mobile phones to scan the IoT tags attached to the wine bottles to  access to information shared by manufacturers, logistic companies and  distributors through blockchain. We will also see global luxury brands, automobiles and wine  manufacturers use blockchain and IoT technologies developed in China to  tackle counterfeiting and introduce completely new experiences to  customers. I am also aware that a major Chinese Internet company established a  blockchain laboratory last year. In 2018, they plan to launch a  blockchain platform to integrate their B2C, B2B, logistic and financial  business units so as to share data with their suppliers and business  partners. Don't see China taking center stage? CoinDesk is accepting submissions for our annual 2017 in Review. 

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