Photo: IC

Shenzhen, South China's Guangdong Province, could be the first pilot city in China to launch a national digital currency, following the central government's plan to work out a cryptocurrency in the metropolis, nicknamed "China's Silicon Valley." 

Local leading technology companies such as Tencent and state-run financial institutions are researching technical frameworks for cryptocurrency innovation, local industry insiders said.

As Facebook prepares to launch its ambitious Libra cryptocurrency, China's experiment with digital currency seems to be gaining momentum. Some suggest that Chinese companies should form an alliance with participants in foreign countries, such as Pakistan or India and those in the Belt and Road Initiative (BRI), to counter the rise of Libra.

China's central government released a document on August 18 that aims to build Shenzhen into a pilot demonstration area of socialism with Chinese characteristics. Under Beijing's guidelines, the central government supports all innovative applications such as digital currency research and mobile payments.

"This is the first time that an official document recognized and encouraged digital currency research and development. It has gladdened the city and inspired many local industries to work hard," Shentu Qingchun, CEO of Shenzhen-based blockchain company BankLedger, told the Global Times on Wednesday. 

Industry insiders told the Global Times that China's top technology companies, such as Tencent and Alibaba, as well as large state-owned banks, have begun research on the underlying technology to support the development of a government-backed cryptocurrency.

"Tencent has made several proposals based on its wildly popular online payment wallet Tenpay," a source said. 

In Shenzhen, some leading technology and financial companies, including China Merchants Bank, began technological research into "things indicated by the central bank" last year, Sha Sha, chief operating officer of Shenzhen-based blockchain company Chainfor, told the Global Times on Wednesday. 

China banned initial coin offerings in 2017 and halted direct bitcoin-yuan trading due to concerns about financial risks. Yet signaling a loosening grip, officials from the People's Bank of China (PBC), the country's central bank, said in early August that China will accelerate the research and development of its digital currency under a project called "digital currency for electronic payments." 

Officials also said that the PBC will designate several operating institutions to research related technologies, and those who come up with the best technological solutions will win market acceptance.

Shenzhen Financial Technology Co (SFT), a wholly owned subsidiary of the PBC that was founded in June 2018, is still recruiting staff, Shentu said. SFT announced openings for blockchain engineers and research fellows in early August on online job-hunting platforms, media reports said.

SFT previously launched certain blockchain-based applications, such as supply chain finance, but none involved applications for digital currency, industry players said. 

Photo: VCG

Accelerating process

Observers said that launching the pilot project in Shenzhen could accelerate China's push into launching its own digital currency. 

"Shenzhen is an ideal place for China to begin digital currency experiments thanks to its premium position as one of the world's technology powerhouses. The city has an innovative gene. It has given birth to hundreds of fintech companies that have built up world-leading blockchain technologies and widespread applications," Shentu said. "We now need a clear starting gun."

Meng Yan, vice president of the Digital Asset Research Institute, told the Global Times that Shenzhen carries special weight in terms of fintech innovation.

"If the pilot program in the city is successful, it could be copied and promoted across China fairly quickly. If the program derails, it is also easy to bring it back on track in Shenzhen," Meng said.

Shentu added that Shenzhen's proximity to Hong Kong allows for the landing of complicated applications of digital currencies in the special administrative region, as Hong Kong - an international financial hub - supports payment, settlement and clearing of a wide range of global currencies.

"Having the ability to design a digital currency is one thing, but getting it accepted by the market and the broader consumer base is another thing. China has a competitive edge in the latter," Shentu said. 

In June, Facebook announced plans to launch the Libra stablecoin, which it said will be pegged to a basket of currencies such as the US dollar, the pound, the euro and the yen. The yuan wasn't included in the basket, and the 30 institutions working with Libra did not include a Chinese company. Some said that the move shows the US' desire to shut China out of the digital payment innovation system. 

"To claim a foothold in the international currency battle, Chinese companies should also join hands with countries and regions involved in the BRI, with ASEAN countries and with India. Emerging markets share a common interest, and they don't want to see Libra grow into a dominant, super-sovereign currency that weakens their sovereign currencies' positions," Shentu said.