Since 2016 China issued the 13th Five-Year National Informatization Plan, China has set out to establish national standards for blockchain technology, policy frameworks, and relevant legal standards. This plan listed blockchain as one of the key cutting-edge technologies, and emphasized the need to strengthen the innovation, test, and application of new technologies, including blockchain.
The People Bank Of China (PBOC) development plan 2019-2021 has further identified six priority tasks required to strengthen the strategic development of financial technology in China.
This PBOC plan refers to the Chinese government’s investment guideline “Made in China 2025” project, that aims to create a core portfolio of national assets as models to be utilized for export abroad.
Cloud infrastructures, artificial intelligence (AI), blockchain and digital currencies will play a key role in order to converge data and transaction flows from corporations and institutions to end users, consumers and vice versa. This technological framework will constitute a “new engine for high quality financial services development and for supervised system against cyber security risks”.
The main authorities involved in regulating blockchain industry are: “CAC” Cyberspace Administration of China over blockchain server providers, the Ministry of Information Technology “MIT” and for Industry and Commerce “SAIC”.
From financial point of view, PBOC and China Banking and Insurance Regulatory Commission “CBIRC” play a key role in order to harmonize this cutting-edge technology within finance ecosystem and regulation.
China is trying to give a clearer regulatory framework over technology implementation, for instance, since the beginning of 2020 came into force the cryptography law stated to implement safer prescriptions for commercial transfers of data and legal liabilities for misconducts.
All supports that technology will boost strategic economic development plans contributing to the building of a digital Silk Road.
In this document we are According to the development plan 2019-2021 issued by People Bank Of China “PBOC”, six priority tasks have been identified in order to strengthen the financial technology strategic position under a long term perspective.
We are therefore focusing on two key pillars: Blockchain Service Network (BSN) “BSN” and Digital Currency Electronic Payment system (DCEP), already in testing by “DCEP”, that are both already undergoing testing phase by the PBOC.
Around these two pillars, Chinese corporations and associations will provide their blockchain operation services: IT, trade finance, supply chain, healthcare, insurance, digital identity by enterprises networks consortiums.
BSN is a technological alliance between the State Information Center of China, China Mobile Communications Corporation, China UnionPay Corporation, China Mobile Financial Technology Co Ltd and Beijing Red Date Technology Co Ltd.
This alliance is building the first “national supported” cloud architecture operative worldwide, offering a lead to Chinese corporations in terms of data internationalization. It is clearly one of the main points supporting “Made in China 2025” initiatives in terms of new advanced information technology to export worldwide. From a technical point of view, BSN works as a multi-hybrid cloud architecture offering IaaS solutions through public city nodes and PaaS through BSN portals. It is able to connect China mainland and overseas strategic locations offering blockchain solutions “BaaS” by Chinese IT providers working in a range of business sectors (finance, logistics, healthcare etc).
The project’s timeline has been delayed due to Covid-19 and is scheduled to officially launch internationally on July 31st, 2020. The project has a start phase of 200 nodes around China mainland and overseas locations. BSN has partnered with AWS China to speed up the process for internationalization. BSN can be seen as a way to let easily enable enterprises and government to interoperate through cloud infrastructure. It can represent Blockchain Service Network “BSN” and Digital Currency Electronic Payment system “DCEP”.
According to business schedules, the project has been reassessed after the Covid-19 pandemic outbreak and will be officially launched on July 31st 2020. The project foresees a kick-off phase of 200 nodes, located all over China Mainland and overseas. BSN has already partnered with AWS China in order to speed up the internationalization process establishing itself as the foundation for to be seen as a “gate” through which enterprises and governments can interoperate via cloud. Potentially, a perfect duo to let private and public data achieving achieve the best performance resultsperformances.
DCEP is a software solution enabling consenting PBOC to issue and manage the first sovereign digital currency backed to the “fiat” value of renminbi (RMB). It is mainly a technical transformation of the mechanism for the issuance and circulation of RMB.
It is sectioned in two operative layers: while the first involving one involves PBOC and commercial banks, the second involving one involves Chinese commercial banks to and end users (business or individual).Currently ,businesses or physical persons.
As for now, the DCEP does not necessarily use blockchain technology, but it does however use since it leverages on asymmetric cryptography, which is fundamentally the fundamental reason for the efficiency and security of electronic payments that DCEP provides and provided by the DCEP ; furthermore it is fully implemented on a distributed ledger technology for securing transactions.
The DCEP also provides the possibility to execute smart contracts and storage feature makes possible features into a digital wallet so technology still sounds close, but it comes from , although under a more centralized perspective.
It is possible that a blockchain solution will be Blockchain solutions can be potentially implemented only at the first layer of the operative system, in terms that consent it allows to notify, allocate and record digital currency operations from PBOC to other commercial banks.
Besides, How will the other rest of the big financial players in China (,Alipay and Wechat Pay ) just to name two of them, will be involved in the this system? Will they be involved, or will this potentially make them redundant, or force them to offer different services?Our suggestion is that pre-existing , especially if this will push them out of the market?
We can only argue that the preexisting digital currency channels will be involved in transferring money to the money transfers in favour of consumers. Due to their market position in the market , these players have are used to play a a vital role in when it comes to ensuring the security of holdings and the facilitation of facilitating transactions.
In the longer term it is long term, we are likely to see witness an interaction in terms of using off chain transactions usage in the context of t a second layer for layer context for connecting consumers, while the first layer would be supported by on chain transactions connected with a centralized authority (PBOC). This solution may help to structure shape a payment system able to better perform in capable of boosting performances when dealing with a huge number of transactions per second.
In addition to this, China UnionPay Corporation and China Mobile Financial Technology Co., Ltd. are now both involved in current digital transfers of currency and are founders also the founding partners of BSN. That recalls a possible This picture suggests a potential integration of DCEP over with BSN to empower the accountability of , which might empower mainland and overseas transfers.
How might is it possible for BSN and DCEP interoperateto interoperater?
BSN is still at the first layer . It is andis also working as a cloud solution for blockchain application providers, but the . The fact that big players such as like China Union Pay are involved in the project may lead to the conclusion that a digital state currency issued by PBOC may be installed on the network.
In the medium-a middle term , it is our opinion the two pillars will work in the following wayperspective, we will probably see these two pillars working jointly : DCEP will act as a centralized digital currency crypto running over on a decentralized cloud architecture (BSN) able to provide , capable of providing different blockchain solution solutions to different business enterprises. In that way the The combination of these two assets will constitute a safer, stronger , and quicker way means for supporting investments.
Supporting to this assumption BSN has also recently announced a partnership with Chainlink technologies in order to set up Cross chain communication hubs to implement the mechanism in which Dapps interact with data stored outside the network like weather info, stock info, Iot data.
This key integration will enable governments and enterprises to incorporate validated real-world data into their BSN applications using Chainlink oracles via the Iris foundation interchain service hub.
Chainlink oracle network will help BSN with sourcing of reliable information about the real world. Meanwhile, Iris Foundation., will integrate businesses by Cosmos network assisting BSN with interoperability, or allowing different systems to work in conjunction with each other.
Business point of view, this feature will be fundamental let BSN interoperate with other systems (like DCEP) and in supporting Chinese and foreign corporations to collect and deploy a trusted stream of data for securing strategic investments plans.
At the completion he project will offer three services: cross BaaS solutions, cross cloud portal connections, cross framework inter operation.
Business sector associations such as the Chinese Bank Association Business sector associations, such as the Chinese Bank Association, are starting to implement their own solutions focusing on industries such as branches like trade finance, supply chain finance, supply chain operations and logistics, copyright copyrights and IP, judicial and legal, health and digital identity.
Focusing finance ecosystem, PBOC and SAFE in the last two years set up trade finance solutions connecting finance industry, SMEs and national authorities in order to boost cross border operations connected with international hub based in Hong Kong.
Blockchain service providers such as , like Aliyun and , Baidu to name one, will easily run their BaaS into BSN nodes providing blockchain solutions at cheaper implementation costs and in an easy way for development , crossing different markets needing and offering different customized solutions for each different business case.
In the longer termlong run, BSN could will allegedly be considered as a focal strategic and technological architecture that would be enable capable of assisting businesses from mainland China mainland to expand overseas with the support of overseas strategic locations under a secure and distributed network.
DCEP could represent On the other side, DCEP might stand as a way to fully drive overseas investments in terms of political orientation and economic accountability.
The By joining together, these two pillars joining together will create give rise to a continuous flow of assets (, both data and transactions), able to efficiently support the that will efficiently support the execution of the Belt and Road Initiatives (BRI) and “BRI”, along with other national investment development programs that programs that still are struggling in some areas of the world because of the lack of inter-connectivityinterconnectivity, transparency, governance and accountability.Proposed by Eugenio Reggianini & Andrea Frosinini.
Please find the full report here.
DLT solutions for trade and finance - China focus - Final report