Bank Of China

China’s state-affiliated banks onboarding crypto companies in Hong Kong

Chinese banks are opening bank accounts for regulated crypto companies, with several acting as a payment layer for the crypto platforms.

Hong Kong’s push to become a crypto hub has opened an opportunity for not just crypto companies but many state-affiliated banks in China. The Chinese banks have shown interest in building partnerships and onboarding regulated crypto companies in Hong Kong, despite a blanket bank on crypto-related activities in mainland China.

The Hong Kong arm of the major Chinese state-owned Bank of Communications is collaborating with several cryptocurrency businesses registered in the city. The bank is in talks to open accounts for regulated companies, according to a report published in The Wall Street Journal.

In addition to the Bank of Communications, ZA Bank — Hong Kong’s largest virtual bank controlled by Chinese internet insurer ZhongAn Online P&C Insurance — will also act as the settlement bank for the crypto companies. The banks will together facilitate the depositing and withdrawal of fiat currencies.

Along with providing account services to cryptocurrency businesses, these banks will serve as settlement banks to enable token deposits at authorized exchanges to be withdrawn in Hong Kong dollars, Chinese yuan and U.S. dollars.

At the start of the year, Hong Kong’s financial secretary Paul Chan clarified that the city is pushing to collaborate with more crypto firms in 2023. As a result of the government’s progressive crypto approach, nearly 80 cryptocurrency firms have shown interest in opening or expanding their business in the city. The government’s crypto push has attracted some surprising allies in the form of Chinese banks and funds.

As Cointelegraph reported, besides onboarding crypto companies and opening bank accounts for regulated firms, the Chinese government-backed CPIC Investment Management launched two crypto funds. CPIC is the second-largest insurance firm in mainland China, and its newly launched crypto funds are focused on institutional investors

China’s growing interest in crypto via Hong Kong has surprised many in the crypto ecosystem, as the country has carried out multiple crackdowns on crypto-related activities in mainland China.

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Hong Kong citizens not interested in digital yuan: Reports

Despite the 20% discount, the e-CNY hard wallets don’t attract much attention from Hong Kong residents.

The Chinese government’s central bank digital currency (CBDC) project has not sparked much enthusiasm among the citizens of Hong Kong. In the first four days since the “digital yuan” (also known as “e-CNY”) hard wallets became accessible to residents, only 625 Hongkongers had obtained them.

As reported by a local newspaper on Feb. 28, Shenzhen installed the machines, dispensing the hard wallets for digital yuan, the first of a kind in the country. Due to the city’s unique location as a gateway from Hong Kong to mainland China, the machines were programmed to serve the citizens of Hong Kong exclusively.

The goal of the initiative, launched by the Bank of China and smart card provider Octopus Card, was to issue 50,000 hard wallets by March 31. However, in the first four days after the machines’ installation, only 625 wallets were demanded by the customers.

Even the 20% discount on purchases from 1,400 local vendors — subsidized for the CBDC owners by the government — hasn’t been a decisive factor for adoption.

However, as the Shenzhen Securities Times highlights, the local authorities will continue to promote the digital yuan for Hong Kong citizens, including the SIM card hard wallet, which would combine financial and communicational functions. The reason lies in a greater political mission to integrate the recently independent island city in the Guangdong–Hong Kong–Macao Greater Bay Area.

The adoption of e-CNY in the country is still slow, despite the Bank of China’s efforts. In October 2022, two years after the CBDC’s introduction to the market, cumulative e-CNY transactions only crossed 100 billion yuan ($14 billion). In February 2023, during the Lunar New Year period, multiple cities reportedly gave away over 180 million yuan ($26.5 million) worth of the CBDC in programs such as subsidies and consumption coupons to boost the adoption.

Bank of China ex-advisor calls Beijing to reconsider crypto ban

The economist argued that the current crypto ban in China is beneficial in the short term, but big opportunities can be missed in the long run.

The idea of lifting the cryptocurrency ban has started floating in China as a former central bank official has called the country to review its stringent crypto restrictions.

Huang Yiping, a former member of the Monetary Policy Committee at the People’s Bank of China (PBoC), believes that the Chinese government should think again about whether the ban on cryptocurrency trading is sustainable in the long run.

Huang voiced his concerns about the future of fintech in China in a speech in December, according to a transcript published by the local financial website Sina Finance on Jan. 29.

The former official argued that a permanent ban on crypto could result in many missed opportunities for the formal financial system, including those related to blockchain and tokenization. Crypto-related technologies are “very valuable” to regulated financial systems, he stated, adding:

“Banning cryptocurrencies may be practical in the short term, but whether it is sustainable in the long run deserves an in-depth analysis,” Huang stated. He also highlighted the importance of developing a proper regulatory framework for crypto, though admitting that it won’t be an easy task. Huang said:

“There is no particularly good way to ensure stability and function as to how cryptocurrencies should be regulated, especially for a developing country, but ultimately an effective approach may still need to be found.”

Despite calling for an in-depth analysis of the potential long-term benefits of crypto for China, Huang still emphasized that there are many risks associated with cryptocurrencies like Bitcoin (BTC). Huang argued that Bitcoin is more like a digital asset rather than a currency because it lacks intrinsic value. Echoing a common anti-crypto narrative, he also claimed that a significant share of Bitcoin transactions is related to illegal transactions.

Huang, now an economics professor at Peking University’s National School of Development, also admitted that China’s central bank digital currency has failed to reach wide adoption despite being launched many years ago. He added that allowing private institutions to issue stablecoins based on the digital yuan remains a “very sensitive” question, but the pros and cons are worth considering.

China has been long known for its “blockchain, not Bitcoin” stance, with Chinese President Xi Jinping calling for the country to accelerate the adoption of blockchain as a core for innovation in 2019. At the same time, the Chinese government has shown some hostility to crypto, eventually banning virtually all crypto transactions in 2021.

Despite the ban, China has continued to be the second largest Bitcoin miner in the world as of January 2022, hinting at a large crypto community still existing in the country. According to official data, mainland China customers accounted for 8% of the collapsed crypto exchange FTX despite the country’s ban on crypto trading.

Some local crypto enthusiasts even believe that China has never really banned individuals from possessing or trading crypto.

Wuhan omits NFTs from metaverse plan amid regulatory uncertainty in China

The Chinese government has shown a keen interest in developing a metaverse economy, but its stance on NFTs hasn’t been very clear.

The Chinese city of Wuhan had reportedly shelved its aspirational nonfungible tokens (NFTs) plans amid growing regulatory uncertainty around the crypto and Web3 technologies in the country.

Wuhan first announced its plans to support metaverse and NFTs in the aftermath of the coronavirus breakout as a measure to boost its economy ruined by the pandemic. The city was the epicenter of the COVID-19 breakout.

The Wuhan government’s draft industrial plan for the city’s metaverse economy development included a line about NFTs. However, that part has now been omitted from the latest version, according to a report by South China Morning Post. The report noted that the revised version still encourages businesses to focus on decentralized tech and Web3 but makes no mention of NFTs.

Under the newly revised plan, Wuhan aims to foster more than 200 metaverse companies and build at least two metaverse industrial estates by 2025.

Looking at the revised version of the draft, the Chinese government seems to do away with anything that involves the exchange of tokens or digital properties. The stance has been clear over the years as the government development plans have included metaverse-related technologies. For example, several Chinese cities, including the capital city of Beijing and Shanghai, have announced metaverse innovation plans, but any private business or tech giants involved with NFTs have faced government hostility.

At the start of the year, China was aiming to separate NFTs from cryptocurrencies in a bid to help the nascent industry grow despite a blanket ban on the latter. This resulted in a peak of interest among Chinese communities as NFT marketplace Opensea was flooded with listings from Shanghai during COVID lockdowns.

However, with the rise in popularity, the number of fraudulent activities rose as well, leading to several government warnings to investors against NFT trade.

China was very clear with its stance on crypto use in the country and eventually imposed a blanket ban in 2021 after several years of numerous restrictions. However, the government’s stance on emerging Web3 technologies, especially those that involve the exchange of tokens or digital collectibles, or NFTs, seems far from clear at the moment.

Bank of China: Digital yuan transactions volume crossed $14B mark

The largest CBDC pilot in the world is going to expand on citizen payments and cross-border operations with Hong Kong.

China’s central bank digital currency (CBDC) project has reached the mark of close to $14 billion, or 100.04 billion yuan, of made transactions during its pilot phase. It makes digital yuan, the e-CNY, the most widely adopted CBDC in the world.

As the Bank of China reported in the post on its official WeChat page on Oct. 10, by the end of the summer, the number of transactions made in 15 provinces within the CBDC pilot framework had reached 360 million. More than 5.6 million merchant stores already support the digital yuan as a legal tender, according to the post.

The pilot is expanding among some state institutions as well, covering a wide range of citizen payments:

“Multiple e-government service platforms have opened digital renminbi payment services, supporting online and offline channels to handle various public utility payments, using digital renminbi to issue tax rebate funds, special funds for monthly medical insurance payment, funds for helping people in need, and ‘specialized, special and new’ enterprise support funds, etc.”

The financial regulator shared its plans for the project development, which include launching the cross-border payments between Hong Kong and mainland China, actively exploring the multilateral cross-border option in collaboration with the Bank for International Settlement and following the principle of “anonymity for small amounts and traceability of large amounts” to protect the user’s personal data.

With its first CBDC trials launched in April 2020, China’s central bank has been aiming to eventually replace cash with the digital yuan. In September 2022, it shared plans to expand the deployment of the e-CNY to four of the country’s provinces, including Guangdong (earlier, the pilot ran only in separate cities).

Interestingly enough, the Bank of China reported about $13 billion (87.5 billion yuan) worth of transactions by January 2022 — with the fresh update, it could mean that in the last seven months, the overall amount of new transactions didn’t exceed $1 billion.

Shanghai included blockchain, NFTs and Web3 in its 5-year plan

The municipal government pledged to support the enterprises that are discovering the nonfungible market.

China’s biggest city Shanghai officially intends to boost the development of innovations such as blockchain, nonfungible tokens (NFTs), the Metaverse and Web3 during its next five-year plan.

On July 13, Shanghai’s Municipal Government published a draft of its “14th Five-Year Plan for the Development of Shanghai’s Digital Economy.” The document sets its mission of “promoting the deep integration of digital technology and the real economy,” with “scientists judging technology prospects” and “entrepreneurs discovering market demand.”

The plan suggests supporting the enterprises that plan to construct the NFT trading platforms and “research and promote the digitization of NFT and other assets.” A separate section is dedicated to blockchain, with a voiced commitment to promote the development and application of “blockchain+” technology and build a blockchain development ecosystem with strong innovation capabilities and independent control.

There is also a place for Metaverse ambitions, as the municipal government plans to accelerate the research and deployment of the platform for the interaction between the virtual world and the real society by carrying out the development of core technologies and encouraging the creation of new platforms with richer and more diverse content scenarios. The plan emphasizes the significance of new forms of digital entertainment consumption, such as virtual concerts, idols and sports.

A planned exploration of Web3 opportunities would include researching a multi-platform OpenID, distributed data storage, a decentralized domain name resolution system (DNS) and end-to-end encrypted communication technology, complemented by the update of itshardware base and deployment of 6G, Internet Protocol version 6 (IPv6), sixth-generation wireless network technology (Wi-Fi6) and quantum communication.

While the plan keeps silent on the prospects of decentralized finance (DeFi), it mentions “digital finance” with a promise to promote smart contracts and improve asset trading, payment and settlement, registration and custody. However, the section puts an emphasis on exploring the pilot of the digital yuan, th central bank digital currency (CBDC) cherished by the Bank of China.

Other, non-crypto-related directions of a five-year plan touch on the issues of smart cities, low-carbon energy, digital health, intelligent service robots and others.

In his article from June 26, Yifan He, the CEO of Red Date Technology — a major tech firm involved in the development of China’s major blockchain project called the Blockchain Service Network (BSN) — has called private cryptocurrencies the “biggest Ponzi scheme in human history.”