Is China Throwing Its Weight Behind Blockchain?

(Bloomberg) --

Here’s a surprising sentence: the Politburo of the Communist Party of China held a special meeting to learn more about blockchain.

The first reason that’s surprising is who. The Politburo is made up of China’s 25 most-senior officials, mostly in their sixties, and traditionally not a group known for being tech savvy.

Second is what. While blockchain is not only about cryptocurrencies, cryptocurrencies have been the most widely used application of the technology. And China essentially banned digital currencies in 2017, which is where the third surprise comes in.

Is China now throwing its weight behind blockchain and could this foreshadow some loosening of the ban on digital currencies? Markets seemed to think so, pushing up shares of Chinese companies linked to the technology and also the price of Bitcoin.

But maybe we shouldn’t be surprised at all. Technology is obviously a crucial part of Beijing's plans for the future and blockchain is potentially as important a field as artificial intelligence or big data, two topics the Politburo has also met to discuss. 

China’s central bank helps explain why. The People's Bank of China has expressed concern about the impact that a cryptocurrency outside of its control might have on the economy and the financial system. That’s one reason it’s hard at work on its own digital currency, so that China won't be forced to adopt a technology developed abroad.

And if you listen to Facebook, the opposite is also true. The social media company has begun to argue that if U.S. regulators stymie its plans to release its own cryptocurrency, it could contribute to China building a global digital currency first and America falling behind.

Let’s hope the crypto wars of the future aren’t too devastating.

Party Plenum

The first full meeting of the Communist Party's Central Committee in almost two years ended this week with no big surprises. That was always the most likely outcome. With the trade war bubbling and the economy slowing, the projection of confidence is more important than ever. The communique issued after the so-called plenum reflected that. While noting that domestic and international risks were increasing, the Party's leaders also articulated why China is well-equipped to handle them: Unified leadership and political stability.

Can't Stay Here

What emerged this week from ongoing negotiations between the U.S. and China seemed to suggest a phase-one trade deal looks increasingly likely. And while presidents Donald Trump and Xi Jinping may soon be getting together to sign that pact, where their meeting won't be is in Chile. Ongoing unrest forced President Sebastian Pinera on Wednesday to call off plans to host this year's APEC summit in mid November. The announcement briefly spooked markets, which had been anticipating a deal that would de-escalate tensions, before the White House made it clear it still expected to finalize an agreement in the coming weeks. Whether a phase-two deal follows is far less certain.

National Security Threat

ByteDance is a Chinese tech company valued at about $75 billion thanks to the success of its TikTok app, which allows teenagers to watch 15-second videos that other teenagers have made of themselves dancing to various music. It may also be a national security threat, according to U.S. senators Tom Cotton and Chuck Schumer. That assertion could be an overreaction to China's growing tech sophistication, or even the manifestation of anti-China scaremongering. But there's also reason to take it seriously. If Facebook could be used to sow division, it's hard to imagine why TikTok couldn't as well. 

Electric-Car Troubles

The third-quarter was not a happy one for China’s electric carmakers. Sales of new energy vehicles declined in each of the period’s three months, including a 34% drop in September, after Beijing scaled back subsidies. BYD this week illustrated how that’s translating into pain for companies when it reported an 89% slump in quarterly profit. Meanwhile, NIO, the struggling Chinese electric carmaker backed by Tencent, announced that its chief financial officer was stepping down for personal reasons. Both announcements speak to the broader question hanging over the sector: is the electric-car bubble about to burst?

What We’re Reading

And finally, a few other things that caught our eye:

• China rolls out 5G with world's largest commercial network.
• How well-placed is China to handle global economic disruption?
• Why U.S. blacklisting stunned this Chinese AI company.
• What Hong Kong's protests have in common with Lebanon, Chile.
• China's trillion-dollar bid to make its geography an advantage.

To contact the editor responsible for this story: Jeff Black at jblack25@bloomberg.net

©2019 Bloomberg L.P.

With assistance from Bloomberg