The financial district of Pudong in Shanghai is on track to become a leading pilot zone for the exploration of fintech applications involving the use of blockchain technology.
The Chinese central government recently indicated that Pudong would be a leading trial area for further fintech trials involving technologies such as the blockchain and the Digital Renminbi.
The State Council called for “establishing a trade finance blockchain standards system and undertaking statutory digital currency trials” in its “Opinions Concerning Support for Reform and Opening of the Pudong New District, and Creating a Guidance Area for Socialist Modernisation” (关于支持浦东新区高水平改革开放 打造社会主义现代化建设引领区的意见), issued on 15 July.
The issuance of the Opinions arrives after the Chinese government included the blockchain as a “key digital economy sector” in its 14th Five Year Plan, signalling increased efforts to support its development.
Domestic blockchain analysts see the technology being most widely applied to trade-related financing.
“Because of the various problems that exist with traditional models, blockchain-based trade financing can better resolve trust issues when it comes to complex procedures, and better integrate with international trade needs,” said Xiang Lipeng (相里朋) from the Blockchain Team of the Ministry of Industry and Information Technology’s 5th Research Institute to Blockchain Daily.
Xiang highlighted three key functions of blockchain technology when it came to trade finance:
- Serving as a letter of credit (LOC) delivery system. According to Xiang, a blockchain-based LOC delivery system can expedite domestic LOC operations at all stages, including opening, notification, deferral of payment and payment, which will raise security and reduce the time required for the delivery of LOC’s and documentation, while also increasing processing efficiency.
- Serving as a cross-border forfaiting transaction platform. “Blockchain-based forfaiting financial asset transactions can adopt unified technology platforms and data standards to support diversified transaction methods,” said Xiang. “They can expedite counter-party discovery and price discovery on the market, raise transaction efficiency and transaction transparency, standardise the existing forfaiting operation transactions market, and provide effective asset transaction supervisory methods to regulators, establishing a credit market.”
- Serving as a convenience settlements platform. “Using trade settlement contracts, exporters directly embed pre-payment in smart contracts, so that when the goods of the exporter arrive at their destination and the system verifies documentation, this triggers the smart contract to release payment for the exporter. This not only simplifies procedures and reduces services fees, more importantly it reduces the period of time that funds are held and increases funds efficiency.”
In 9 April 2018 the Chinese central bank launched the trial operation of a trade finance blockchain platform in Shenzhen, while in September 2020 its Digital Currency Research Institute executed a strategic cooperative agreement with the Changning district of Shanghai to establish Shanghai Fintech Co., Ltd. (上海金融科技有限公司), for the launch of a trade finance blockchain platform and tech research and development centre.