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Chinese Local Governments and Blockchain
- Benedict Altier
Local governments have committed to making vast investments to support burgeoning blockchain enterprises. By 2019, this figure had already reach over 40 billion RMB, led by Hangzhou's 10 billion Xiongan Global Innovation Fund. Other cities launching funds have included Shenzhen which has launched a 500RMB fund, Nanjing's $1.5 billion investment fund and Hainan's 1 billion RMB fund.
Government guidance funds play a key role in providing funding opportunities and encouraging investments. Governments have also partnered with private companies or state banks to develop e-governance applications. Guizhou's capital Guiyang has received significant national acclaim and attention for its blockchain platform for targeted poverty alleviation built in partnership with state-bank ICBC. Its success has raised the profile of Guizhou’s blockchain ecosystem increasing its appeal to investors and startups. Launching flagship projects which can win national media coverage has been key for provinces without a long-established track record of producing successful startups. Other notable projects include Beijing, Hangzhou and Guangzhou's Internet Courts which have developed judicial blockchain platforms to store copyright information and evidence on blockchain networks.
Local governments also outline suggested 'application areas' designed to develop regional comparative advantages in certain industries. They then highlight model applications in this niche. This is partially targeted at encouraging startups in sectors other than finance, which BlockData's 2019 report notes still represent 51% of blockchain projects. Beijing's recent plan outlines 12 application cases covering areas such as logistics, property management and e-governance.
Local governments in Guizhou, Guangdong and Hangzhou were initially responsible for outlining the most expansive support policies for China's blockchain industry. While Shanghai and Beijing ranked among the leaders in blockchain patent applications and registered companies, their support policies and plans for supporting the industry were limited. However, both cities have now set-out comprehensive plans for supporting the industry. Like other regions, they provide specific financial incentives for sales and meeting targets, rent subsidies, and fund the establishment of Blockchain Parks. Local governments also provide funding for the establishment of industry associations, research centres and incubators to create support ecosystems. They also offer funding for participation in standards creation.
In June, Beijing released its Blockchain Innovation Application Plan 2020 - 2022. The plan outlines a detailed strategy for how the city plans to become a "highly influential" centre for blockchain innovation. This will involve pilot applications in areas such as real estate registration and other areas of urban governance. It encourages exploration into how blockchain can be used to improve transportation, power, and urban data. However, the barrier to participation in many of the projects outlined in the plan limits the opportunities available to smaller startups. Instead, compliant networks that meet the standards expected by government projects are difficult for newly established enterprises to achieve. This is not limited just to Beijing, but is a major weakness of local government plans across jurisdictions.
Blockchain industry parks have been a widely employed means of providing tax breaks and subsidised rent to newly established blockchain companies. The first park was launched in Hangzhou in April 2018.
The parks have had mixed success rates, with high occupancy rates in major cities where rent subsidies provide a crucial buffer against rising commercial property prices. However, a May 2019 report by Interchain Pulse and the CCID Blockchain Research Institute found that non-coastal cities have struggled to fill the parks. It revealed that 30% of domestic blockchain industrial parks have a vacancy rate of more than 50%. The parks report also highlights the sector’s dependence on continued government support, since 70% of parks dependent on government subsidies to function.
Regional governments across China have worked to establish local blockchain ecosystems.
In 2017, 60% of venture capital funding went to companies in Beijing, Shanghai and Shenzhen
Increasing access to funding opportunities outside of leading metropolises has been critical in encouraging startups to relocate. However, access to funding remains limited with capital and registration requirements limit the ability of smaller startups to access funding. The take-up of schemes such as the establishment of domestic industrial parks have not yet substantially altered the geography of blockchain companies. But it is likely that local funding will remain available if the technology remains a central government priority.
This article is an excerpt from Silicon Road's China's Blockchain Landscape Report.