China’s Ambitious Blockchain Plans Could Cast US Dollar Out of the Game

March 22, 2019 Updated: April 1, 2019

Commentary

China’s largest news portal, Sina.com, recently made this statement in a headline in its financial section: “For Americans, blockchain is a technology or a philosophical practice. But for Chinese, blockchain is an opportunity for China to change lanes and surpass competitors.”

Undoubtedly, the United States is still in the leading position in blockchain technology. However, in terms of commercial application, it is still at the discussion stage in the United States.

Most U.S. blockchain experts have no idea that the Chinese Communist Party (CCP) has already highlighted the importance of blockchain development and application to such a level that it is treated as part of the “national strategy” and as a key step in the future battle between China and the United States for leadership position in the international arena.

The CCP’s ultimate vision in the blockchain development and applications is to create an “international government” (that is, the so-called “community of common destiny” for mankind), powerful enough to influence every corner of the world. The near-term goal is to establish a digital currency system to compete with and eventually replace the dollar trading system, directly targeting the global financial dominance of the United States.

The National Interest magazine published an article on Aug. 24, 2018, warning that “U.S. technological and financial dominance is at stake” as China and Russia seek to develop blockchain technology.

Blockchain Technology Jeopardizes the US Dollar System

A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block contains typically a hash pointer as a link to a previous block, a timestamp, and transaction data.

By design, blockchains are inherently resistant to modification of the data, and the data are recorded in a verifiable and permanent way.

Satoshi Nakamoto was the first person to propose the concept of blockchain in the 2008 Bitcoin White Paper, and created Bitcoin, the first type of cryptocurrency. Later, blockchain technology was used to create more cryptocurrencies and was gradually applied to other areas.

The blockchain-based cryptocurrency is characterized by decentralization; that is, a financial system that doesn’t rely on a centralized regulatory system. There are many different types of cryptocurrencies, and cryptocurrency exchanges can be found in many countries.

Presently, the dollar is still the world’s universal currency, and half of all global trade is denominated dollars. Dominating global finance, the United States can not only obtain information on financial transactions, monitor the flow of funds to terrorist organizations or rogue states, but also use the dollar system to impose financial sanctions with ease on foreign companies or countries that violate certain regulations.

However, the dollar trading system, especially international remittances, requires a dedicated network of banks, which is not only time-consuming, but also involves high processing fees. The global peer-to-peer, cryptocurrency-based payment network can make up for these shortcomings.

At present, as cryptocurrency has some potential problems such as cybersecurity risks and being exploited by criminals, it has not been universally recognized and accepted by the mainstream. Moreover, no single private cryptocurrency can challenge the powerful and well-established dollar system.

However, if a totalitarian regime with a large economy comes up with a plan to improve cryptocurrencies and works with a number of other countries to establish a cryptocurrency trading system, it will be a completely different story.

At present, Alipay, a subsidiary of China’s internet giant Alibaba, has successfully used blockchain technology to create a new international remittance system outside the banking network, enabling fast, secure, and convenient remittance via mobile phones or computers. Alibaba is pushing the Alipay business globally through overseas mergers, acquisitions, and business cooperation, including the One Belt, One Road (OBOR) initiative, which is regarded by the CCP as its largest core project in the 21st century.

As early as 10 years ago, Zhou Xiaochuan, then-governor of People’s Bank of China, published an article on March 23, 2009, on its website, proposing to create an international reserve currency (the so-called “super-sovereign currency”) that is decoupled from any sovereign country. It’s clear that the CCP had the ambition to challenge the status of the dollar and Zhou’s proposal had attracted a lot of attention from the international society.

Now, it has become a serious threat as the CCP lays out a blockchain strategy in China and abroad.

The CCP’s Global Blockchain Strategy

According to China’s National Intellectual Property Administration of China (CNIPA), the number of Chinese patent applications in 2018 was 1.4 million, an increase of 11.6 percent over the previous year. However, the segment of invention patents in blockchain technology continued to maintain an exponential growth trend, increasing by 115.6 percent year-over-year to 2,913 applications, and more than 100 times that of four years ago.

Among the companies with the largest number of applications in blockchain technology in 2018 were China Unicom, Alibaba, Tencent, Baidu, and JD.com. Some of these companies have also applied for multiple patents at the World Intellectual Property Organization (WIPO). Moreover, several of them had never applied for blockchain patents until 2018.

In contrast, in all other countries and regions, the total number of blockchain patent applications in 2018 is lower than in 2017.

Obviously, behind the huge increase in blockchain patent applications in China is the strong support from the Chinese authorities.

The development of blockchain technology has long been part of the CCP’s development strategy. With the CCP’s funding and policy support, various official organizations have been established to promote the development of blockchain. Many industry giants have joined the effort, and a large number of blockchain start-up companies have also come on stage.

According to data released by the news website SupChina in August 2018, from January 2016 to August 2018, the total investment in the blockchain development from various local governments in China reached approximately $3.6 billion.

Among them, starting in April 2018, the Xiong’an Global Blockchain Innovation Fund, supported by the Chinese government, provided $1.6 billion to China’s blockchain startups. The sub-institutions of the Central Bank of China also launched a “Blockchain Registry Open Platform” (BROP), hoping to hire more blockchain experts.

It must be noted that government-sponsored development of blockchain in China clearly doesn’t include private cryptocurrencies. Since 2017, the CCP has banned the sale of cryptocurrencies, and the restrictions on domestic cryptocurrency activities have become more and more stringent.

In April 2018, Russian news agency Sputnik quoted Zhang Hua, co-founder of the DAEX Blockchain Group Limited, as saying that China’s Central Bank is developing China’s own digital currency, the encrypted renminbi, and therefore does not allow any other cryptocurrency to circulate in the country.

As early as January 2017, the Central Bank of China officially established the Digital Currency Research Institute, recognizing the inevitability of the emergence of digital currency and the possibility that it will eventually replace paper currency.  Since then, the Central Bank has published a series of feasibility reports on state-issued digital currency.

In 2018, Sina.com had a special column in its finance section that claimed that China’s Central Bank had already formed a comprehensive chain structure, and was trying to solve the final technical challenge of currency digitization.

If we pay attention to the development priorities announced by the Chinese authorities every time, we will find that the blockchain and cryptocurrency are always included in the priority list in recent years. It is even more so for China’s financial institutions, which claimed that cryptocurrency was the top priority in 2018.

However, such research is obviously limited to serving the Chinese authorities, rather than developing decentralized private cryptocurrencies.

The core of the communist totalitarian system is the never-ending pursuit to strengthen social control. It is only natural that the CCP doesn’t welcome any private cryptocurrency free from the control of the central government. Instead, replacing paper currency with the state-issued digital currency developed by the government is what the Chinese authorities are happy to see, as it can take back the only degree of freedom left in private cash transactions and fully grasp and monitor all the capital flows in the entire society. This is what the CCP has always dreamed of.

In October 2018, Danny Deng, chairman of China’s blockchain company Tai Cloud Corp., mentioned in a public speech that the future “megatrend” is the issuance of cryptocurrency by the state, replacement of the interbank foreign exchange market with cryptocurrency transactions between countries, and establishment of a huge global “super liquid market.”

Tai Cloud has been approved and is strongly supported by the Chinese government. It is the leading company in China responsible for promoting the research and popularization of blockchain. Deng participated in the Davos Forum as the head of China’s blockchain delegation in 2019.

In order to build this new global financial system, the CCP is promoting a blockchain financial system through the OBOR strategy to countries along the route. In doing so, the CCP is testing the system, and at the same time laying the foundation to challenge the dollar system in the future.

In September 2016, at a discussion forum at Beijing University, titled “Blockchain and Digital Currency,” Deng pointed out that blockchain will usher in “greater opportunities” in the OBOR initiative.

He specifically mentioned that most of the OBOR projects are in developing countries in Asia, Africa, and Latin America where financial foundation is relatively weak, which provides a good opportunity for the introduction of China’s blockchain technology.

In fact, in 2016, the same year when Deng delivered this speech, Tunisia in North Africa and Seghar in West Africa issued digital currency, becoming pioneer countries in the issuance of digital currency. Both countries have joined the OBOR.

The Mediterranean island of Malta, which has adopted a very loose policy on cryptocurrency, has become the center of cryptocurrency transactions in the world. Malta is also an OBOR country.

Deng didn’t care to hide his goal in developing blockchain technology. “Using blockchain technology can give the U.S. hegemony a heavy blow,” he once said.

Kazakhstan, a Central Asian country, is the gateway to the West in the OBOR economic circle. Tai Cloud also intends to popularize the blockchain financial system in Kazakhstan and establish a national digital currency trading platform. In order to achieve this goal, Deng personally went to Astana, the capital city of Kazakhstan, and spoke about the achievements he made during his Kazakhstan trip in an interview with Japan’s NHK TV. The Kazakh oil exporters who hate to be affected by the fluctuation of the dollar are very interested in the “vision” depicted by Deng and actively seek to cooperate with Tai Cloud.

The CCP’s intense development of the blockchain financial system has alarmed the U.S. government.

Steve Yalik, intelligence analyst at the U.S. Department of Defense, told NHK TV that once the Chinese government establishes and dominates a financial system independent of the dollar, it will formulate its own blockchain standards and incorporate companies and countries into its own economic circle. It will be an awful situation because it will be a China-driven structure, in which all the rules are set by China.

Blockchain and ‘Community of Common Destiny’

The CCP has vigorously developed blockchain technology as part of its development strategy, not only for the establishment of a financial system that challenges the dollar system, but also for many other applications involving all aspects of social life.

In June 2018, the National Center for Mathematics and Interdisciplinary Sciences, Chinese Academy of Sciences, and Tai Cloud jointly announced the establishment of the “Big Data and Blockchain Laboratory.”

On Jan. 12, 2019, the 2019 work conference of China Group Companies Association (CGCA) blockchain submeeting was held in Beijing. Zhang Muhan, assistant to the CGCA president, claimed the blockchain submeeting was meant to “respond to the national strategy call,” provide blockchain enterprises with policy information and the latest development of blockchain technology, promote resource sharing and collaboration among members, and facilitate the integration of new technologies such as big data, artificial intelligence, and blockchain.

Deng announced at the meeting that he planned to cooperate with the Ministry of Public Security to develop an identity chain, and, at the same time, promote the development of electronic contract filing.

Tai Cloud also officially announced that the company’s “shared passport” developed through blockchain technology combines trusted identity verification with a comprehensive application platform. It is noteworthy that the technology had already been adopted by the Chinese authorities, and it’s the ID card system of the Ministry of Public Security that connects with the Tai Cloud passport to use this technology and provide ID authentication.

In October 2018, Deng delivered a public speech, titled “Why blockchain will change the world.” He claimed that the widespread use of blockchain technology could greatly enhance the development of artificial intelligence, big data, internet of things, patents, storage and computing, and even gene editing. It has the potential to become the largest global business and social infrastructure ever, creating a 24-hour global digital government, digital medical, education, and other social and management systems.

In his speech, Deng also mentioned digital citizenship and digital identity, as well as the relatively sensitive technology of genetic passport created through DNA sequencing.

Deng concluded at the end of his speech that the development of blockchain technology will make it possible to create a so-called “community of common destiny.”

The concept of “community of common destiny” first appeared in the CCP’s 18th National Congress in 2012. It became one of the keywords in the 19th National Congress in 2017. What is its specific connotation? Different countries seem to have different understandings.

Regardless, the core idea of the “community of common destiny” is the same, that is, the future world will have a new political order, a new economic order, and a new technical system, including the corresponding judicial system and ideology system, and the country at the center of this system will be communist China. Behind the “community of common destiny,” there is always the shadow of the communist totalitarianism and its ultimate goal—a world government.

This isn’t just a pretty soap bubble that the CCP touted to put powder on its face. In fact, the CCP is already building the prototype of this “community of common destiny,” that is the OBOR.

In August 2017, Chinese state-run media Xinhua published an interview with an obvious title, “The ultimate goal of the ‘Belt and Road Initiative’: building a community of common destiny.”

For the CCP, catching up with, surpassing, and replacing the United States is a never-changing strategy for decades. In the fields of 5G, new energy sources, artificial intelligence, biotechnology, and big data, the CCP is determined to and has already become the most powerful opponent of the United States. Blockchain and cryptocurrency are just another powerful tool in the wave of high-tech development that the CCP relies on to “surpass competitors at the curve.”

By using blockchain technology to replace the dollar system, perhaps someday in the future, China and the United States will exchange positions. This is no doubt an irresistible temptation for the CCP.

Li Jie is a reporter for NTD, part of the Epoch Media Group.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

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