December 13, 2024
By Anjali Kochhar
China continues to show its dominance in blockchain technology while keeping a strict stance on cryptocurrencies. With the most blockchain-related patents in the world, the country has firmly established itself as a technological innovation leader. At the same time, China plans to make significant changes to its Anti-Money Laundering (AML) regulations by 2025, aimed at combating the growing usage of cryptocurrencies for illegal activities. These initiatives show the country’s dual approach to blockchain innovation and decentralised financial systems regulation.
China’s government has heavily invested in blockchain as a cornerstone of its technological ambitions. The country leads in blockchain patents, with applications spanning various sectors, including logistics, healthcare, and public services. For instance, the integration of blockchain in the supply chain industry has enhanced transparency and efficiency, while its use in public services has streamlined administrative processes.
A critical element of China’s blockchain strategy is the Digital Currency Electronic Payment (DCEP) system, commonly referred to as the digital yuan. This state-backed digital currency has been undergoing extensive pilot programs and is steadily expanding its reach. By promoting the digital yuan, China aims to enhance financial inclusion, reduce reliance on the U.S. dollar, and tighten control over domestic financial transactions.
While embracing blockchain, China has taken an aggressive stance against cryptocurrencies. Since the 2021 ban on cryptocurrency trading, mining, and Initial Coin Offerings (ICOs), authorities have intensified efforts to curb illegal crypto-related activities. Despite these measures, advancements in technology and the decentralised nature of cryptocurrencies have allowed users to bypass restrictions, leading to concerns over money laundering and fraud.
To address these challenges, China is revising its AML framework to include virtual asset transactions. The first major overhaul of the AML laws since 2007, the updated regulations aim to provide legal tools for combating crypto-based crimes. The draft legislation includes measures for asset seizure, freezing, and confiscation, although experts have pointed out gaps in operational guidance. Professor Wang Xin of Peking University Law School remarked, “While the revised draft includes provisions for virtual asset money laundering prevention, the lack of operational clarity creates a disconnect, hindering effective enforcement”.
China’s blockchain and crypto policies reflect a broader strategy of technological leadership coupled with economic control. By championing blockchain technology, the country seeks to modernise industries and assert itself in the global digital economy. However, its restrictive approach to cryptocurrencies underscores a desire to maintain financial stability and mitigate risks associated with decentralised systems.
Legal scholars and industry analysts have expressed mixed views on China’s approach. On one hand, the emphasis on blockchain innovation positions the country as a global leader in technology. On the other hand, stringent crypto regulations may stifle private-sector creativity and limit international collaboration.
Jianwei Wang, Deputy Director at the Ministry of Industry and Information Technology, highlighted China’s dominance, accounting for 84% of global blockchain patent filings. He noted that blockchain technology is pivotal in areas like smart cities and administrative services. However, experts like Wang emphasise that despite the high volume of filings, only a fraction around 19% are approved, reflecting concerns about the quality of China’s blockchain patents compared to competitors like the U.S. and South Korea.
China’s digital yuan also carries significant geopolitical implications. By promoting the digital yuan in cross-border transactions, the Chinese government aims to reduce dependency on the U.S. dollar and challenge its dominance in international trade. This aligns with China’s broader ambitions of economic self-reliance and increased influence in global financial systems. However, its isolationist crypto policies could hinder its ability to fully leverage the global digital economy.
The entire crypto community is closely monitoring China’s progress toward enforcing its amended AML legislation. The new legislation could serve as a model for other countries facing the combined challenges of promoting innovation and combating financial crime. At the same time, China’s strong position on cryptocurrency raises concerns about the balance of innovation and control.
Despite the challenges, China’s blockchain advancements underscore its commitment to leveraging technology for national development. The success of this strategy will depend on how effectively the government can address regulatory gaps while maintaining its leadership in innovation.
About the author
Anjali Kochhar covers cryptocurrency and blockchain stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.
