{"id":23227,"date":"2017-09-09T00:35:52","date_gmt":"2017-09-09T00:35:52","guid":{"rendered":"http:\/\/ci027cfe6730022697"},"modified":"2025-01-28T18:36:26","modified_gmt":"2025-01-28T18:36:26","slug":"op-ed-chinas-ico-ban-characteristic-not-catastrophic","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/business\/op-ed-chinas-ico-ban-characteristic-not-catastrophic","title":{"rendered":"Op Ed: China’s ICO Ban Is Characteristic \u2014 Not Catastrophic"},"content":{"rendered":"
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The crypto market, especially in China, has been in a panic in these past few days, largely because of an official notice on Preventing Risks of Fundraising Through Coin Offering<\/a>, jointly issued by the People\u2019s Bank of China (PBOC), the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Commission and the China Insurance Regulatory Commission.<\/p>\n

There seems to be a general fear that China\u2019s attack on Initial Coin Offerings (ICOs) and tokens, often used to fund blockchain innovation and open up investment in blockchain technology to the masses, will stifle blockchain development and the industry as a whole in one of the world\u2019s largest markets.<\/p>\n

At first glance, the harshness of the statement seems to be comparable to the Chinese government\u2019s 2013 warning<\/a> that made bitcoin prices plummet immediately. However, those in the West who suspect that China is stifling Chinese innovation are underestimating the political wisdom of the Chinese government. Meanwhile, those in East critcizing China\u2019s ICO policy for being too harsh as the government moves to protect the interests of private investors are ignoring the Chinese government\u2019s history of decisiveness in tackling \u201cillegal public funding\u201d in recent decades.<\/p>\n

Western critics should think about China\u2019s economic development and gains during the past decades since a policy of openness was initiated in 1978; in this context, the government\u2019s latest statment can be read for its underlying message. Eastern critics should understand that the Chinese government has zero tolerance for any activities that will jeopardize its financial stability.<\/p>\n

The second-largest economy in the world managed to weather the financial crises of both 1997 and 2008: This was not simply chance. China\u2019s economy is both innovative and ambitious. Since blockchain technology is acknowledged as the next-generation technological powerhouse, with the potential to reshape the way value is exchanged, there is no reason for China to do anything to harm blockchain innovation. China is not cracking down on blockchain technology: It is actually poised to lead blockchain development not only in its own country, but also around the world.<\/p>\n

Breaking Down the Language<\/h3>\n

First, though the original text is subtle, it is crucial to note that PBOC\u2019s statement on September 4 only targets illegal ICOs instead of targeting blockchain companies as a whole. The translation of original text is: \u201cNo organizations or individuals shall conduct any illegal token financing activities (ICO).\u201d The underlying interpretation is that where there are illegal ICOs, there will also be legal ICOs (or \u201ctoken financing atctivities\u201d), which requires the introduction of new regulations.<\/p>\n

Besides avoiding the use of the word \u201cblockchain\u201d itself, the statement also reveals another subtlety: It uses the term \u201cvirtual currencies\u201d to refer to all ICO tokens. This word choice is particularly telling. In the past, when People\u2019s Daily, the party-run newspaper, described bitcoin as \u201cdigital gold\u201d \u2015 for instance, in an article<\/a> published in May \u2015 it used the term \u201cdigital currency.\u201d It is important to interpret the Chinese language, especially specific word choices made by official sources, very carefully. By choosing to use the word \u201cvirtual,\u201d a word implying \u201cunreal\u201d and \u201cinsubstantial\u201d in Chinese, the legitimacy of ICO tokens has already been undermined.<\/p>\n

Second, what happened in the Chinese crypto market in the past few months has impacted the government\u2019s bottom line: Its financial stability has been threatened. Although many Westerners in the crypto space are familiar with a few Chinese projects like NEO and Qtum, the Chinese crypto market has actually witnessed the recent advent of more than 65 ICO projects, with around $400 million raised, according to a report<\/a> issued by National Committee of Experts on Internet Financial Security Technology.<\/a><\/p>\n

The absolute number is not enormous, but the key is that most of these projects are unreliable and even fraudulent, with no open-source codes and sometimes without any white paper. Some projects even provide huge discounts to pre-ICO investors \u2015 thereby dooming those who joined the official ICO to lose money, even after building up hopes of 10x returns. It is this sort of irresponsible behavior that compelled the government to step in before anything more extreme happened.<\/p>\n

Furthermore, any financial activities involving financing from the public are particularly suspect in the eyes of the Chinese government. Wu Ying, once China\u2019s most successful businesswoman, was sentenced to life in prison in 2014 for \u201cillegal funding from the public.\u201d Also, E Zubao, once the country\u2019s biggest online lender, was condemned by Chinese authorities as a Ponzi scheme after the company was found to have squandered the money raised from the public (which should have been used to match investors to potential borrowers). The losses can be considerable: Around $7.6 billion was involved in the E Zubao case, for instance.<\/p>\n

Past transgressions like these are chiefly to blame for China\u2019s current suspicion of ICOs. It is perhaps no surprise, in other words, that the government is declaring ICOs to be illegal, while requiring the return of all tokens to investors. China is being characteristically cautious regarding anything posing potential risks to its financial stability.<\/p>\n

Third, while China still encourages innovation within the blockchain industry, it needs a regulated crypto market. It may regulate ICOs, the exchanges, and information disclosure channels. But the reason behind this regulation stems from a need to create a sound environment for blockchain development in China.<\/p>\n

According to China\u2019s Premier Li Qeqiang last year \u2015 in the government\u2019s 13th Five-Year Plan<\/a> for Economic and Social Development \u2015 blockchain technology has been listed as an important area of development for Chinese endeavors. This overtly positive support of blockchain technology will not be changed easily. Other evidence of official support of blockchain technology abounds. For instance, a news program on CCTV<\/a> stated that China is only pausing ICOs, not banning them outright. And the news section of the official site of the Chinese government also reposted an article stating that \u201cChina can potentially become the leader in blockchain industry.\u201d (See image below.) These are all subtle signals that China is preparing for a better blockchain world.<\/p>\n

In the blockchain session of the Global Digital Marketing Summit, held by the Guiyang government in western China in July this year, the government also mentioned that a \u201csandbox mechanism\u201d will become an important step for investors to invest in projects without worrying about policy risk (as the sandbox will allow for a more open space for qualified projects to be promoted and financed). <\/p>\n

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An article on the official website of the Chinese government: China can potentially become the leader in blockchain industry<\/em><\/p>\n

ICOs are among the first experiments for the blockchain industry to explore its own business and financing models. It is normal that a new industry and its encumbent business model will find itself in conflict with the existing laws of a given country at some point. To make some corrections and to embrace compliance guidelines will not harm the industry in the long run.<\/p>\n

China\u2019s attitude toward blockchains and ICOs has had such an impact on the global token price that it has actually affirmed the importance of China\u2019s role in the industry. Its recent policy is an attempt to maintain financial stability and set the tone for the future of the industry in China.<\/p>\n

Fears that China will confine or even kill the blockchain industry are not tenable. Furthermore, China has a large and solid foundation of internet and mobile device users, and a world-class level of infrastructure. If the blockchain industry really has the potential to further improve human commerce and civilization, China\u2019s market will serve as the best test case.<\/p>\n

Even if in the end, the new policy makes it harder for blockchain projects to be financed in China, when one considers that internet giants like Alibaba, Tencent and Jingdong have all based their businesses in China but found financing mainly outside the country, there is really no need to worry about the development of blockchain in China \u2015 let alone the rest of the world. <\/p>\n","protected":false},"excerpt":{"rendered":"

The crypto market, especially in China, has been in a panic in these past few days, largely because of an official notice on Preventing Risks of Fundraising Through Coin Offering, jointly issued by the People\u2019s Bank of China (PBOC), the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for […]<\/p>\n","protected":false},"author":3519,"featured_media":23228,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[556,347,3240,3224,2692,1127],"class_list":{"0":"post-23227","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-blockchain","9":"tag-china","10":"tag-icos","11":"tag-op-ed","12":"tag-pboc","13":"tag-regulations"},"author_data":{"id":3519,"name":"Chris Zhou","nicename":"chris-zhou","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/chris-zhou-promo-image-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/op-ed-chinas-ico-ban-is-characteristic-not-catastrophic.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/23227","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3519"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=23227"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/23227\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/23228"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=23227"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=23227"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=23227"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}