Over the weekend, Li Lihui, leader of the blockchain research group at the National Internet Finance Association (NIFA) of China, suggested the country is overly reliant on foreign blockchain technology and that this is a problem. Until 2014, Lihui was President of China’s fourth-largest bank, the state-owned Bank of China.
In his speech, he also suggested a clarification of the norms for law-abiding citizens when it comes to distributed technologies. This perhaps refers to the increased cryptocurrency speculation following President Xi Jinping’s recent positive blockchain statements. The surge in interest triggered a crackdown on cryptocurrencies. He made the argument for China taking its place in this new globalization of finance.
Lihui pointed to the immaturity of blockchain technology, which he stated is still relatively small in terms of adoption, and doesn’t support a large number of simultaneous transactions. At the same time, the technology is progressing across the globe.
“Our problem is that in terms of underlying digital technology, many of our key and core technologies are dependent on foreign countries. There is a technical dependence on foreign countries,” said Lihui.
He continued: “This is very important. Dangerous. For example, the original code used by the blockchain is basically not our own. This technical dependence will cause a larger problem in the future.”
China has locally generated blockchain protocols. But many of them are derivative. And Hyperledger and Enterprise Ethereum versions such as Quorum are popular.
For example, FISCO-BCOS is one of the largest blockchain consortia with backing from the likes of WeBank, Tencent, Huawei, and ZTE. Its BCOS blockchain protocol is derived from Ethereum. In fact, there are two versions of BCOS, in one version the encryption libraries are swapped out for standard Chinese encryption.
The alternative encryption is for the Blockchain Service Network (BSN) a state-initiated national infrastructure for blockchain targeted at SME’s, which is based on FISCO-BCOS. It plans to launch next year.
In a recent blockchain whitepaper from Tencent, it confirmed this reliance. Tencent stated: “The [enterprise] chains mainly use foreign Hyperledger Fabric and domestic FISCO BCOS as the technical platform”.
Meanwhile, Lihui continued as quoted by Sina.com: “We should define industrial policies to give preferential treatment to digital technology R & D companies and professionals in terms of taxes and fees, and encourage the development and application of digital technology.”
He continued that China may want to “establish global competitive advantages in key areas of the digital economy and digital finance.”
Putting his comments in context, Lihui was talking at a conference “Responses and Choices under the Changing Global Structure,” where his blockchain statements were a small part of his speech. He also discussed the ageing Chinese population and the immaturity of the Chinese wealth management sector.
Apart from encouraging domestic technology research, Lihui made three suggestions. He provided an argument for market mechanisms. Lihui observed that when there are problems in markets, there is perhaps a tendency to address them with “administrative means”, and suggested a greater leaning towards market mechanisms combined with legal norms.
Lihui argued for the use of technology for credit ratings and better risk management. He gave the example of Alibaba using big data to provide improved credit ratings, thereby empowering more lending.
Lastly, Lihui promoted the need for standards, something the Chinese authorities are focusing on for fintech. On a related note, there has been confusion amongst the public about the overlap of blockchain and cryptocurrencies. Perhaps he was referring to this when in the context of standards, he suggested China should “clarify the norms of the responsible subjects and behaviors in the distributed architecture and their regulatory standards.”
“And we should also see that digital finance is bound to strengthen the globalization of finance further,” said Lihui. “In the construction of a digital financial globalization system, China should not be absent. We should actively participate and strive for our right to speak globally.”