China's President Xi wants the nation to lead on blockchain, but insiders say local governments might get in the way

Two Fridays ago, Chinese president Xi Jinping urged the nation to be at the cutting edge of blockchain, a rare public endorsement of the technology that might have come as a surprise to many, some of whom didn’t even have time to Google, or Baidu, what blockchain is. 

Among those that may need Blockchain 101 are officials of some Chinese local governments, who are ready to spend millions on this new technology but don’t always know who to hand the money to, according to several blockchain project executives The Block talked to. 

"We see a lot of optimism and a lot of renewed enthusiasm in the space [in China]. [For] blockchain tech in China in general, there was ambiguity in terms of what is encouraged and what is against the regulators, we are seeing much more clarity," said blockchain project Nervos co-founder Kevin Wang. 

A “tokenless” public chain? 

The fast mover here is Guangzhou. Just a few days after Xi’s comments, a district government in the city of Guangzhou announced that it would subsidize up to $1.4 million annually to a public blockchain project that doesn’t have a token - a notion that may be confusing to many, as they deem tokens intrinsic to a public blockchain.

“I was actually somewhat at a loss when I first heard ‘tokenless public blockchain,’” said Anbang Ruan, CEO of Trias-lab Foundation, a Beijing-based public blockchain project that has previously worked with a local government in Jiangxi Province. 

Despite Xi’s public endorsement of blockchain, some government officials still shy away from tokens due to the central government’s ICO crackdown in 2017. At the time, token offerings were banned as a pretense for illegal fundraising, and until today the regulatory status of tokens is still not clear. Therefore, for local governments, the least risky route to take with blockchain may be to support blockchain projects and draw a clear line against tokens. 

“[Tokenless public blockchain] may be a special term during a phase of transition,” said Ruan. “Consortium blockchains have never been banned. So when Xi said he supports blockchain, it is possible that he is alluding to public blockchains. However, nobody says whether tokens will be supported, so that's how tokenless becomes a thing.”

A political mission 

For many local government agencies, riding the blockchain tide is not just an option, but a political mission. However, to achieve that mission means these agencies have to plunge themselves into a fledgling market that is often blamed for producing more noise than signal, and parse through over 750 China-based blockchain startups. 

“[Some government officials] do not know what a blockchain is, not to mention to distinguish one chain from another. The things they really pay attention to are the use cases that these projects can realize,” said Ruan. 

To be sure, not all government officials are clueless. On the contrary, several top-tier cities plunged their roots into the blockchain space years before Xi’s comments. Hangzhou, the home of Alibaba, mentioned blockchain in its 2018 government report as one of the few technologies that they hope to take lead in. The city also established one of China’s first blockchain-centered Industry Parks in April 2018 and established a venture fund of around $1.6 billion to invest in blockchain startups. Similarly, the cities of Nanjing and Shenzhen also have venture funds to finance the local blockchain ecosystem. 

However, even these frontrunners may miss their shots sometimes. One of the celebrity blockchain companies featured in the Hangzhou government’s blockchain initiative, GXChain, was raided by the local police earlier this year for allegedly selling sensitive user data. In an official statement, the company said it is still functioning and its blockchain business still operates as normal, although it is unclear whether its partnership with the municipal government will continue.

A much-needed education? 

The urge for government officials and businesses to adopt blockchains may also precipitate a new business opportunity - blockchain consulting. 

James Hao, founding partner of blockchain-focused venture fund DFG, recently flew from Silicon Valley to Beijing in preparation for his blockchain consulting business. Hao said he is planning to offer education programs to government officials and Chinese corporations if there are sufficient demands. The programs will feature university professors, blockchain engineers and entrepreneurs, and some crypto trading experts. 

“We want to establish a consulting company in China focusing on blockchain. Our services could be including one to two day or two to three days short training to corporations or to the government,” said Hao. 

For Chinese blockchain projects, government officials’ potential lack of blockchain knowledge may mean their solutions picking up business interest are still a long ways off.

“It will be a really long process. Especially at the beginning when the potential customers are either not able to judge the quality of a blockchain project or cannot judge because blockchains haven’t found the best use cases,”  said Ruan.