China is at the forefront of development of blockchain technology. All stakeholders: private companies, government and technology providers are betting on the disruptive potential of blockchain.
In contrast to other countries, China is regarding blockchain from a strategic viewpoint rather than just a technology with use cases across industries.
- Definition / Scope
- Market Overview
- Top Market Opportunities
- Market Risks
- Market Trends
- Industry Challenges
- Technology Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
- References
Definition / Scope
Blockchain are decentralized database systems in the form of continuous expandable sequence of data blocks, which comprehensibly record Internet transactions in chronological order.
The blockchain can be identified as an unalterable set of data strings. This connection is made possible by means of cryptographic methods, which ensure that these data blocks come together in such way that old blocks are not substituted or changed.
As more transaction occur, blockchain ecosystem expands and any modification of data will be impossible.
Some of the major network types of blockchain technology are as follows:
Distributed Ledgers:
These are public ledger conducted on a decentralized basis, the content of which is created together with the help of computer network.
Rather than having to deal with real life currencies, blockchain networks in contrast are engaged in digital forms such as Bitcoin, Dash, Litecoin among others. Distributed ledgers are also based on concept o P2P networks, which enable communication between two-equally ranked computers.
Also changes in database will only be accepted with majority of transacting members allow that to take place. This makes the technology more transparent.
P2P Networks:
These are structures in which all of the interconnected nodes are equal to one another and are able to carry out identical functions. These peer to peer networks don’t require any central authority of some sort.
Hashing & anonymization:
All transaction data is saved in some form of data blocks in blockchain networks which are later interlinked by the means of hash values.
Each block contains data related to multiple transactions which are anonymized. Each blockchain network participant can therefore take a closer look on transaction but not at their executors.
Some of the popular applications of blockchain relevant at present include:
- Smart Contracts:
Discontent caused by increasing digital centralization is one of the most significant reasons behind the rapid progress of blockchain technology.
Thus, blockchain step in to replace centralized service providers, intermediaries and supervisory authorities with its decentralized system.
These smart contracts are that kind of decentralization procedure as they are able to process completion of sale contracts on Internet without having to involve banks, attorneys or organized exchange markets.
Some of the major services that smart contracts can be used for include, settlement of trust agreements, documentation of data, proof of copyright, patents etc. usage of financial instruments such as bonds, derivatives etc.
- DAO’s
More complex legal entities including entire organizational structures are also modelled by means of various blockchains. These are also termed as DAO’s or decentralized autonomous organizations.
This application represents a commercial model that aims to organize non-profit companies in decentralized and autonomous ways.
The application was derived from DAO- a crowd funding project launched in 2016 by Ethereum based blockchain. “The DAO” is also the biggest crowdfunding project till date with a capacity of around $168 million.
- Bitnation:
Bitnation has become an internet nation since 2015, available to all users over internet without any borders or central governing bodies. All the basic needs are market oriented and met by private providers.
It is the most revolutionary concept in the history of mankind as every bitnation citizen has right to vote, bring ideas and promote them.
This blockchain project not only provides passports, but also makes entries in the land register possible. Operations are stored in encrypted text files and each citizen can be easily identified with an individual code.
Contracts and other applications are regulated by means of smart contracts and the only available payment option are Bitcoins with blockchain as the governing control mechanisms. However, the project is facing criticism from real world leaders as law & regulations are not in place.

Market Overview
In China, with the support of the government and available skilled workforce, the domestic blockchain is growing more mature each passing year.
As of 2019, China has approximately 263 projects in process within the blockchain sector which is approximately 25% of the global share. Also, the number of blockchain patents filed in china is more than anywhere else in the world.
Chinese firms represent 68% of the global blockchain patent filings
Most of the 615 blockchain companies based in china are merely operating since past two years only.
Apart from government, blockchain projects in China are being funded by tech giants such as Baidu, Alibaba and Tencent. Other major stakeholders belong to few selected industries such as food, automotive and healthcare.
Although 50% of the blockchain solution and spend is accounted by the financial services sector in China, other sectors have also started to explore the technology. Sectors such as retail, discrete and process manufacturing and professional services account 73% of the solutions in the blockchain.
On global front, highest market share in blockchain is accounted by US, but forecasts suggest that by 2023, China will be second largest market for blockchain after US. By 2023, Chinese blockchain will account 11.2% of the global market, US will rank number one at 39%.

Market Risks
Blockchains are generally managed without any trusted third party (TTP). In line with that, their security is ensured by the decentralized transaction history management.
This is effective only in large blockchain networks, because stakeholder groups owning more than 50% of all network nodes are easily able to nullify the collective validation and introduce an alternative transaction history.
A potential risk of manipulation arises even in cases where the majority of users of an international blockchain network come from the same country.
Top Market Opportunities
In China, blockchain technology is regarded as a technology that could drive the economic prosperity of the country. For the same, Chinese firms & research institutes are also more focused on developing long term applications such as copyright protection and product traceability.
According to a survey taken among Chinese enterprises, 73% regarded blockchain as top 5 priorities in their organization. In addition, 34% of respondents also cited that they ‘strongly’ believe in the disruptive potential of blockchain technology.
In comparison to other countries, China is definitely aggressive in leveraging blockchain technology exclusively.
The government and enterprises both intend to develop blockchain applications for strategic use rather than just solving problems and catering to business needs which makes China’s approach in blockchain different from other country markets.

Market Trends
- Growth in Spending
In upcoming years, China’s blockchain spending will see exponential growth in spending. By 2023, the annual spending is expected to reach $2 billion which is limited to $300 as of 2019.
At present, almost 50% of the spend is accounted by the banking sector while other industries such as manufacturing, retail, agriculture and insurance are some of the top industries attracting blockchain spending.
In course of next 5-7 years, these industries will be attracting more than 20-30 times of spending being allocated at present.
Thus, this suggests that more use cases are being opened up across these industries and as government is endorsing companies wanting to venture in blockchain sector, more funding will be available and thus, these factors will boost the growth of industry.
- Increasing Research & Development
Research in technology whether it be blockchain or any other technology has always been the point of focus for Chinese national and local government bodies.
For instance, the volume of blockchain related publication and research institutes have been rising rapidly every year since 2016. The number of research institutes that opened in first four months of 2018 was equivalent to those that opened in the whole of 2017 which was three times more than that in 2016.
In addition, the government- led independent research institutes, corporations and universities established more than 90% of research institutes in China.
In 2018, PBoC also launched a Digital Currency Research Institute that focuses on development and research of digital currencies.
The institute has more than 63 patents applications filed to date. The ultimate goal of the institute is to combine blockchain based crypto currencies with existing monetary systems.

· Slow transaction speed
One of the major factor that is limiting the adoption of blockchain technologies in is crypto currencies like bitcoin which is revolutionary but associated with inefficiencies of “proof of work” system. For example, bitcoin requires almost 10 minutes to add new block to the blockchain.
At that rate, blockchain network will be able to cope up with seven transactions per second. In comparison to other crypto currencies, such as Bitcoin Cash and Ethereum, bitcoin is still constrained by the current blockchain technology.
As a result of a more relaxed processing of payments, blockchain is still not being considered as a widely accepted means of payment.
Even companies are not incorporating it as a part because legacy brands such as visa can process an impressive 24,000 transactions per second, PayPal alone processes around 450 transactions, and the fastest online payment system – Alipay, processes up to 256,000 transactions per second and to surpass these rates, blockchain would need some more time.
· Energy-consuming technology
Although blockchain has many benefits, it still is a technology at nascent phase. In fact, on one side blockchain can save users money on transaction fees, on the other side the technology is far more costly to deploy.
The energy that a blockchain system consumes is surprisingly high. First of all, to validate transactions, bitcoin requires extensive amounts of computational power, which in turn requires energy.
This aspect of the blockchain can be quite challenging, thus Chinese government must find some sustainable solutions to meet the energy consumption of the technology which at present is the major barrier to its implementation.
Industry Challenges
At present, the number of blockchain developers in China is still small compared to other countries and the gap is growing even more. As of 2019, there are 5,290 blockchain developers in the country up from 3780 in 2018.
The less number of blockchain developers in China can be attributed to relatively immature software development sector in the country. The overall industry is inexperienced and unformed.
For instance, a majority i.e. 56.7% of developers in China have only 0-3 years of work experience which is quite incompetent standards when compared to their counterparts in foreign countries where about 42% of these developers in the same role have up to 10 years of experience.
Another problem that the industry faces is amount of post-secondary courses on blockchain provided by university which is quite low compared to enthusiasm Chinese firms have for blockchain technology.
While many of the country’s top universities offer some level of blockchain course or lab, the field has enough room for expansion. Universities in China don’t value the need for blockchain education as they cope with teaching other emerging technologies, such as big data or AI.
The major reason is because blockchain is a developing technology and universities feel that anything they teach now might be irrelevant in the years to come.
At past, technologies based on blockchain were able to successfully decentralize various systems and make internet transactions more transparent. However, the shortcoming of the system in which the technology runs is their redundancy.
In a blockchain network, each node is supplied with a copy of respective transaction accounts. In principle, each person participating in any given agreement method such as the proof-of-work performs the same calculation. In addition, blockchain applications generate large amounts of data, which must be downloaded by each user as part of the validation process. This is considered as one of the key challenge.
Technology Trends
Some of the technology solutions of blockchain across several sectors in Chin include:
- Blockchain in China’s property records:
The application holds potential to eliminate need of scanning documents and tracking physical records in a local recording office. For instance, city of Loudi in Hunan province is doing the same. The administration of the city launched a blockchain based platform that allows smart contracts.
These smart contracts are computerized code that can be saved into blockchain network to allow, verify or negotiate a contract agreement.
Some of the activities that use the technology include, taxation, real-estate and other administrative activities. In case these activities are controlled by blockchain, there will be reduction in bureaucratic practices.
- Blockchain in China’s supply chain:
Within supply chain, the most interesting use case is the logistics department. Suppliers can use blockchain applications to trace the origins of goods that logistics companies handle on daily basis.
For example, Vchain Project that offers real-world business applications. These applications are making logistics efficient and transparent. Blockchain acts as a ledger and facilitated shipment tracking, global contracts and payment processing which is changing the way logistics was viewed before.
- Blockchain in China’s Healthcare:
Sectors such as healthcare is gaining most interest in China. For instance, tech giants such as, Baidu took a challenge to embed blockchain system in its healthcare services and at present, is one of the many providers that is trying to utilizing the technology to safely store medical records.
Regulatory Trends
In 2017, seven authorities in China made a mutual announcement to prohibit onshore and offshore platforms related to ICOs and crypto currency trading. However, the prohibition has not affected the underlying technology blockchain and its development in anyway.
In addition, Chinese government took lead in advocating the development of blockchain technology through series of initiatives. Some of those include,
- In December 2016, the State Council of China included blockchain technology as an important agenda in 13th Five-year plan to build a national strategic technological advantage by advancing blockchain.
- In June 2017, the central bank of China also cited to promote research and application of technologies such as AI and Blockchain as part of 5-year interim plan. The research was solely to be focused on financial industry.
- In October 2017, Ministry of Industry & Information Technology released a white paper on ‘China’s Blockchain Technology & Application Development’ which is also country’s first official guidelines on how to leverage blockchain well.
- In April 2018, to further back blockchain start-ups, the municipal governments of Chinese cities launched blockchain-dedicated funds. For instace, Xiong’An Global Blockchain Innovation Fund equivalent to $1.6 billion was launched in Hangzhou and a district government of Nanjing city propelled another blockchain fund of $1.4 billion.
- In May 2018, the State Council also issued a policy to the local government to accelerate the development of technologies including blockchain.
- Most recently, in April 2019, CyberSpace Administration of China sanctioned license to 197 blockchain solution providers. Endorsement in such great number has given confidence to others in the industry for deployment of such services.
- Further, to nurture the potential of blockchain technology, the Chinese government further introduced regulatory guidelines for technology applications of blockchain. For the same, a FinTech committee was established by PBoC to strengthen application of RegTech. Also Fintech startups: Gingkoo and PeerSafe have outlined regulatory agendas and solutions to blockchain for municipal government and banks too.
Other Key Market Trends
Some of the other key marketing trends in the blockchain technology are:
Enterprise blockchain adoption is set to rise significantly. At present, moving from pilots to deployment is the major barrier for China’s enterprise blockchain solution providers however, Chinese government is increasing investments in blockchain technologies and playing even a bigger role by establishing blockchain consortiums which will boost the market of enterprise blockchain solutions.
China is launching ‘digital yuan’ in 2020 officially. The plan is being accelerated by People’s Bank of China (PBoC) and along with national digital currency, the central bank is also focused on regulating crypto currency which will boost one aspect of blockchain market-crypto currency for sure.
Among all industries, banking industry will be at the forefront when blockchain technology is concerned. Many use cases in banking are being opened up by blockchain in China mostly in areas such as SME lending, banking risk management, compliance among others.
Also, due to multiple use cases, the industry is also likely to witness most of the growth in spending in upcoming years. WeBank, China’s digital only bank has already adopted blockchain based solutions to advance the reconciliation process efficiency in its syndicate loans.

Market Size and Forecast
Market size as of 2019, in China is expected to be around $1.27 billion. The market size has increased 101.7% y-o-y and further the CAGR growth rate for next five years also remains high.
In China, the blockchain applications are spread over 75 areas across 11 industries. However, large part of the spend is limited to few industries only as of now.
China is also spending aggressively in blockchain applications and solutions. As of 2019, China’s blockchain expenditure is estimated to be around $300 million and is growing at CAGR of 65.7% during next 5 years.
Blockchain spending across top 4 industries in China as of 2019 include,
- Agriculture: As of 2019, the spending was around $60.8 million
- Manufacturing: As of 2019, the spending was around $30 million
- Banking: As of 2019, the spending was around $150 million
- Insurance: As of 2019, the spending was around $64 million

Market Outlook
As of 2019, the blockchain market size in China was around $1.27 billion. Over 2019-2025 period, the market size of blockchain in China is expected to record CAGR of 45.7% reaching approximately $22.5 billion by 2025.
Forecast of blockchain spend across 3 fastest growing industries in China:
- Agriculture: By 2023, the market spend is expected to reach $429.7 million by 2023 which is 7 times more than in 2019.
- Manufacturing: The market spend is expected to reach a value of $566 million by 2025 which is 19 times more than in 2019
- Banking: the market spend is expected to reach $3 billion by2023 which is 20 times more than in 2019.

Competitive Landscape
In 2019, Chinese blockchain startups accounted approximately 28% of new startups globally. Furthermore, China has also submitted most of the patent applications for blockchain around 550 to be exact which is twice as more as US (284 applications).
As of 2019, there are around 400 blockchain companies where majority are focused around technology applications for several industries such as financial and on other economic sectors such as agriculture, manufacturing, supply chain and logistics.
Exactly 78% of these companies operated out of major cities in China such as Beijing, Shanghai, Shenzhen, and Hangzhou.
Wanxiang Blockchain Labs, a non-profit research institution which is established by the China Wanxiang Holding group is the first dedicated blockchain research centre situated at Shanghai and it was formed in 2015.
The lab is pioneer in the blockchain technology and has already initiated projects such as, Bubi chain and Juzix
Besides that, three tech giants in China namely, Alibaba, Baidu and Tencent (collectively known as BAT) have also started multiple projects concerned with blockchain technology.
For instance, Baidu became a member of an open source industry blockchain initiative called Hyperledger in October 2017 and launched its blockchain-as-a-service (BaaS) platform whereas Alibaba built a supply chain tracking system using blockchain for e-commerce and healthcare sectors.
Finally, Tencent also developed a platform called TrustSOL to develop blockchain applications and provide enterprise service solutions. Besides BAT, other corporations like Huawei, Xunlei and JD.com) are also considering to integrate blockchain into their firms’ strategic plan in near future.
Competitive Factors
VC investments were continuously rising in the blockchain sector until previous year hitting peak with 82 deals in Q1 2018 however that was 24 deals in Q1 of 2019.
The y-o-y comparison of VC deals show that there has been almost 70% decline in deals in a course of just 1 year. Furthermore, the deals in the sector in China when considered value wise is still high compared to global standards. Although number of deals fell y-o-y.
By Q2 of 2019, China already had 71 deals worth $368 million. All these facts suggest that China is an important market of blockchain technology despite the slump.
Reasons for slump is likely to venture funds that no longer isolate funding but are moving towards a new model where they rather incubate startups. Also funds in China are struggling to find good investment targets despite of falling valuations of blockchain startups.
Even deal size has shrinked to an average of $100,000 while deals worth half a million are rarely found. As investor mentality is moving more towards diligence and vigorous research before investing, funding scene in the sector is likely to slow down for a while.

Key Market Players
Top Chinese Blockchain companies are as follows:
- Bitmain: The Company till date is the most well-funded blockchain company in China which has around $450 million capital raised as of 2019. Further, the company is also looking to seek for IPO option in Hong Kong Stock Exchange and is currentlyunder process.
- HyperChain: The company is the second most well-funded after Bitmain at $249 million. The company develops range of enterprise blockchain solutions and distributed ledger technologies.
- Jixin Blockchain: The Company has so far secured $100 million in funding. Currently, the company is developing more user-friendly wallet application to help customers protect their digital currencies from theft and loss. Their long term vision is to make wallets more usable and accessible to mass customers.
Other notable well-funded blockchain solution providers include,
- Goopal
- Canaan
- Camchain
- Catpool
- ViaBTC
Some of the active investors in the Blockchain space in China are as follows:
- Fenbushi Capital
- LD Capital
- JRR Crypto
- Node Capital
Other notable companies that participate in co-investment opportunities for developing blockchain based games:
- Gamegene
- Hash World
- Fanx
Other companies with notable co-investment in blockchain applications are:
- KuCoin ( Crypto-exchange)
- NEO Name Service (Decentralized DNS Service)
- Hoopox (BaaS provider)
- Ultrain (decentralized computing platform)

Strategic Conclusion
Blockchain is the most revolutionary technology at present however; it still is in a nascent phase. Blockchain has already gained a strong grounds on sectors such as healthcare and fintech and is set to grow into other sectors such as manufacturing in near future.
As China is supporting the adoption of fintech applications more than any other nations in the world, blockchain will also witness major advancement in China. In addition, the government is also supporting the Chinese digital & tech economy, which will surely invite investors to invest in technologies like blockchain too.
References
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