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$50 Billion Worth of Cryptocurrency Left China within 12 Months

According to a report from the blockchain analytics firm Chainalysis, over the past 12 months, over $50 billion worth of cryptocurrency has left China. Analysts claim that the yuan’s fluctuating valuation over this year and tensions amid the ongoing U.S.–China trade war could be spurring local investors to evade capital controls. Beijing bars citizens from moving more than the equivalent of $50,000 out of the country each year.

Tether (USDT) in particular — could be playing a key role. Since Beijing’s 2017 ban on the direct conversions of the yuan to cryptocurrency, the U.S. dollar-pegged stablecoin Tether has served as a popular stand-in for fiat for traders in the Chinese market. In the East Asian market, over $18 billion worth of Tether was moved to addresses based in foreign jurisdictions over the past year. How much of this reflects capital flight remains difficult to establish conclusively.

While yuan-USDT trades are, strictly speaking, also prohibited, OTC (over the counter) brokers continue to sell the stablecoin to enable traders to lock in their gains from crypto trades without worrying about price volatility. In June of this year, Tether outflanked Bitcoin to become the digital asset that East Asian addresses received the most.

The government has meanwhile cracked down on routes for offshoring capital via foreign real estate investments and other assets, leaving cryptocurrency as a possible alternative.

Other contributing factors include uncertainty as to how Beijing’s forthcoming national cryptocurrency will impact the private digital asset market. Chainalysis suggests that this may be driving China’s cryptocurrency community “to move portions of their holdings overseas.”

Source: Central News Agency, August 22, 2020
https://www.cna.com.tw/news/acn/202008220203.aspx

Scholars Believe China’s Digital Currency a Return to Planned Economy

China’s state-owned banks such as the Agricultural Bank of China and China Construction Bank are testing the operation of digital currencies. Scholars believe that the Chinese model of the digital currency actually enables the central government to exert full control over personal wealth, which means returning to the era of a planned economy.

Si Ling, a financial scholar from Shandong University told Radio Free Asia (RFA), “The purpose of China’s vigorous promotion of digital currency is to manage its fiscal revenue in a more organized manner. With the deterioration of Sino-US relations and China’s foreign trade situation, the government will focus on fiscal revenue. In the past, many people used cash transactions to evade tax collection.”

Si believes that, if the Chinese government fully implements digital currency, “transactions will be completely under government supervision, which is conducive to the growth of government revenue. If digital currency is implemented, it may be a public-private partnership in the 21st century. In other words, private wealth can become public owned overnight, if the government chooses to do so.”

Dong Yongqi, a businessman from Shanxi province, told RFA that once the Chinese people start to use digital currency, their personal interests and their privacy will be infringed upon. “For the common people, it will do more harm than good. Most people read the propaganda and don’t understand the invasion of personal privacy that occurs with digital currency. The digital currency is the preparation for returning to the planned economy.”

Dong discussed the fundamental difference between China’s digital currency and that of Western democracies. “The digital currency of a free country by nature uses the blockchain technology and is decentralized, but our country’s digital currency has been centralized. The central bank is in charge.”

Chinese economist Hu Xingdou told RFA that China’s so-called digital currency is not a digital currency in the real sense: “It should be called electronic currency. It is very different from digital currency in terms of privacy and traceability. In other words, digital currency protects personal privacy. Other people, even the government, control no information.”

Caijinglengyan, an overseas social media account, commented that China’s digital currency is to prepare for the planned economy! Its characteristic is the control over currency use and material distribution. One can consider digital currency such as food stamps, meat coupons, travel passes, transportation documents, and permits for big-ticket purchases in the digital age.

Source: Radio Free Asia, August 17, 2020
https://www.rfa.org/mandarin/yataibaodao/ql1-08172020060447.html

China’s Summer Grain Acquisitions Fell, but State Reported Grain Harvest Was “Highest in History”

A government report showing the progress of summer grain acquisitions, released on Wednesday August 12, showed that wheat purchases in regions including Hebei, Jiangsu, Anhui, Shandong, and Henan dropped by 18 percent. However, the state media in Jiangsu and Henan announced “good news.” The media claimed that the summer grain harvest “stayed at the highest level in history.”

In the past few months, disastrous events have occurred in major agriculturally productive regions in China and crops have seen severe damage. However, Zhou Xuewen, the deputy Minister of Emergency Management and deputy Minister of Water Resources, boldly predicted at a recent press conference that the year 2020 will be a great year of harvest. He stated, “The year of flooding is often the year of harvest and will be the harvest of (double-crops and) late rice. Why? The water conditions are better, and the soil is fertile. Our disaster relief measures and our post-disaster recovery and reconstruction, along with our strengthened restoration and planting management, as well as some technologies being used, mean that I don’t think food will be affected this year.”

The website of the National Food and Strategic Reserves Administration published the progress of the summer grain purchases. As of August 5, the total purchase of wheat in the main producing areas was about 42.85 million tons, a drop of about 9.38 million tons, or 18 percent, on a year-on-year basis.

Between January and July, China suffered from the COVID-19 pandemic and severe flooding. Hubei, Anhui, and parts of Jiangsu were flooded. However, state media in those regions claimed that there was a grain harvest. The Jiangsu survey team of the National Bureau of Statistics released data on July 14 showing that the total output of summer grain was 25.2 billion jin (12.6 million tons), an increase of 3.6 percent over the previous year. The Henan team released data on July 17, showing that the total output of summer grains in the province reached 75.1 billion jin (37.5 million tons), around the highest level in history.

He Huiling, a farmer in Luoyang, Henan, told RFA that the drop in the purchase of summer grains is related to the reduction in grain production and the over-exploitation of arable land. “Excessive (real estate) development and excessive land acquisition have left many people with little land to grow crops. Farmers make a living by purchasing food. Many of our local lands have been confiscated.”

Another villager in Nanyang, Henan, told RFA that he does not have any residual food at all. The central government is advocating food conservation because it is worried about a food shortage, “Recently the central government has spoken out about saving food. In our hometown, there is no food in the house. The main reason is that there are fewer farmers. Another reason is the reduction in arable land.”

Source: Radio Free Asia, August 13, 2020
https://www.rfa.org/mandarin/yataibaodao/jingmao/ql1-08132020062337.html

China’s Large-scale Digital Currency Testing

According to China’s English language official media CGTN, four major state-owned banks, including the Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, and the Agricultural Bank of China, have started testing digital currencies in Shenzhen, a signal of the upcoming introduction of the digital renminbi (the name of the Chinese currency).

Years ago, China formulated a plan for the central bank to issue legal digital currency. Since 2014, the government has planned to replace cash with digital currency, but has yet to announce a clear time table. On August 3, the People’s Bank of China (PBOC) announced that it would “actively and steadily advance the research and development of the legal digital currency” in the second half of the year. Back in 2016, Zhou Xiaochuan, then governor of the PBOC, China’s central bank, stated that he planned to spend 10 years to digitize the banknotes which have been in use in the country for more than 800 years.

The PBOC’s digital renminbi is temporarily named “DC/EP” (the abbreviation of “digital currency/electronic payment”). At present, the employees of some state-owned banks have begun to use it for transfers, payments, and other transactions.

Users, after registering in a mobile app, can use a digital wallet to recharge, withdraw, transfer and scan QR codes to pay. Transfer can be done only based the other party’s mobile phone number. The PBOC is studying a scenario of money transfer without a network.

Didi Chuxing, the country’s app-based transportation services giant, said last month, that it established a “strategic cooperation agreement” with the PBOC. With 450 million Didi users, the PBOC hopes to use this huge platform to test the application of digital renminbi in the field of smart travel. In addition, it is reported that Meituan, a food delivery platform that generates billions of dollars of daily transactions, is currently negotiating with PBOC on digital renminbi.

According to Mu Changchun, director of the Digital Currency Research Institute of the PBOC, who is regarded as one of the leaders of China’s digital currency plan, “As long as you and I have a DC/EP digital wallet on your mobile phone, you don’t even need the Internet. As long as your phone has power, you can transfer the digital currency from one person’s digital wallet to another by touching the two phones.”

In April this year, China announced that it will conduct internal testing of digital currency in four main locations — Shenzhen, Suzhou, Chengdu, and Beijing’s new satellite city Xiong’an. A PBOC official disclosed that a larger scale test will also be conducted during the 2022 Beijing Winter Olympics to further evaluate the capabilities and risks of digital currencies through large-scale cross-border transactions.

Although the new currency is to be issued by the PBOC, ordinary people still need to deal with state-owned and commercial banks. In April, a screenshot of the digital currency wallet application test by the Agricultural Bank of China was circulated on the Internet. The screenshot is said to show a variety of functions, including QR code payment, remittance, currency exchange, and “touch” transfers. PBOC officials said that the digital currency will adopt a two-tier operating system. The PBOC will interface with commercial banks, and the commercial banks will be directly interfacing with ordinary people.

Although Beijing’s enthusiasm for digital currency began a few years ago, it is the Bitcoin market and the “Libra” digital currency plan that the US technology giant Facebook initiated that accelerated the process.

Mu Changchun said frankly in an open class, “If Libra is accepted by everyone and becomes a common payment tool, then it is completely possible for it, ultimately, to develop into a world-class super-sovereign currency.”  “In order to protect our currency sovereignty and legal currency status, we need to plan in advance.”

The digital renminbi being tested is the equivalent of paper currency in value and they may be exchanged freely with each other. Unlike Bitcoin and other encrypted digital currencies based on blockchain technology, the PBOC is the currency issuer and requires real name user registration. Senior officials at the PBOC stated that, after the introduction of digital currency, payment data will be anonymous, but this anonymity is “controllable” and the government and banks still have the right to inquire.

Wan Hui, the founding partner of Primitive Ventures, a blockchain investment institution, wrote in an article that, in the traditional sense, the central bank can only directly control the creation and destruction of the base currency, but can only exert indirect control over the broader money supply driven by credit flows. If digital legal tender is issued, the central bank may bypass commercial banks and regain direct control over currency creation or supply. She believes that this will allow China’s central bank structurally to centralize the power to formulate and implement related monetary policies, and it can affect social and economic activities at a more granular level.

Source: BBC Chinese, August 11, 2020
https://www.bbc.com/zhongwen/simp/business-53722841

Xi Jinping’s Instructions on Food Waste

On August 11, Xinhua News Agency reported that Xi Jinping, the General Secretary of the Chinese Communist Party, had recently issued an “important instruction” on food waste. Xi pointed out that the phenomenon of food waste is shocking and distressing! He added that, despite the harvest of the country’s grain production in recent years, it is necessary to have a sense of crisis for food management. The impact of the global corona virus epidemic has sounded the alarm. Xi Jinping emphasized the need to strengthen legislation and supervision, take effective measures, and establish a long-term mechanism to stop food waste.

It is a rare phenomenon that, in recent weeks, the supreme leader of China has repeatedly mentioned food management.

Source: People’s Daily, August 12, 2020
http://paper.people.com.cn/rmrb/html/2020-08/12/nw.D110000renmrb_20200812_1-01.htm

China’s New Policies to Support Domestic Chip-Making

Well-known Chinese news site Sina (NASDAQ: SINA) recently reported that, as a result of  the heavy U.S. pounding on China’s chip supply chains, China just announced major policies to support the Chinese integrated circuit Industry. The Chinese State Council released its comprehensive policies for the chip industry and the development of the software industry. These include strategic policies on financial and tax support, investment support, research and development support, and import/export support, as well as talent pooling support. This new strategic policy document is a natural extension of the No. 18 document in 2000, and the No. 4 document in 2011. The new policy document focuses on core technologies with tangible plans, like a 10-year tax free incentive for chip-making processes below 28 nano-meters. The new policies also recognize the need for more government subsidies.

Source: Sina, August 7, 2020
https://news.sina.com.cn/c/2020-08-07/doc-iivhvpwx9814916.shtml

Major Chinese Banks Conduct Internal Testing of Digital Currency App

The 21st Century Business Herald reported that China is conducting large-scale internal testing of a digital wallet application at four major state-run commercial banks: the Industrial and Commercial Bank of China, the Bank of Agriculture, the Bank of China, and China Construction Bank.

Banking sources said that, in early August, employees at these banks in Shenzhen started internally testing the app to transfer money and make payments.  Other banking sources said that tests involve payments of CCP membership dues, union fees, and other expenses. Tests are being conducted at their institutions. While tests are primarily conducted in Shenzhen, the app is not available for public download.

To register the app, one needs to open a digital wallet in the four major banks. The digital wallets are linked to the individual’s bank accounts and one can recharge funds into the wallet using online banking or credit cards.

On August 3, 2020, the central bank, the People’s Bank of China (PBOC), said the country should actively and steadily promote the development of a state digital currency. PBOC has led the development of the digital currency in an effort to promote the RMB as an international currency and to reduce dependence on the U.S. dollar. The digital currency is still in the internal R&D and testing stage under high confidentiality.  There is little information about a launch timetable.

Source: Sina.com, August 5, 2020
https://tech.sina.com.cn/i/2020-08-05/doc-iivhuipn7039456.shtml

 

China Raises Alarm over Expected Food Shortages

After severe flooding, about one-sixth of China’s land is soaked in water. Much of these lands serve as the main grain growing regions. Both China’s President Xi Jinping and Vice Premier Hu Chunhua recently talked about food security [Editor’s note: meaning food shortages] The pandemic, flooding, the deterioration of Sino-US relations, and the complex international situation are all directly or indirectly affecting food security.

On July 27th, Vice Premier Hu Chunhua spoke at a national food security video conference. Hu asked that food production be strengthened and that China ensure that there would be no mistake about food security. China has a governor’s responsibility system for food security, an institutional arrangement that provincial governments are held accountable for the protection of arable lands and food production in the region.

When Xi Jinping visited Jilin province a week earlier, he also emphasized that safeguarding food security must be placed in a prominent position, and that one “cannot relax” to increase food production.

Among the flooded areas in the southern provinces, substantial parts are major grain producing regions. According to the official statistics, grain production in the summer increased by 0.9 percent. However, the autumn production is a huge challenge. Due to the floods in southern China, some areas may see a “destructive reduction in production or even a total crop failure.” An alarm over food security was raised as autumn grain production accounts for three quarters of the annual total.

Lujiang County, located in central Anhui province, bordering Lake Chao on the north and the Yangtze River on the south, is one of China’s first commercial grain production bases. However, the recent flooding has devastated the vegetable production in Lujiang. The latest statistics show that, as of July 23, the disaster had affected 83,400 mu (13,745 acres) of vegetables, and 55,400 mu (9,131 acres) saw no harvest, causing a reduction of 80,423 tons of production.

Source: World Journal, July 29, 2020
https://www.worldjournal.com/7069933