TWS: June 28, 2021

Graph of the Week | Industry

HODLERS BEWARE: China’s Gunning for You

Curious why your Coinbase holdings have taken a beating lately? Well, that’s just China’s regulators at work. The PBOC recently sat down with the nation’s largest banks and payments providers and urged them to crack down on cryptocurrency trading. More damaging, authorities across the nation have also stepped-up efforts to shutter illegal mining operations.

Powering the Bitcoin network

What’s behind Beijing’s regulators’ ire towards crypto? First and foremost, Bitcoin is an electricity guzzler:

  • An estimated 65% of global Bitcoin mining takes place in China, which requires huge amounts of electricity and has strained China’s State Grid.
  • While China has been transitioning to renewable energy, the vast majority of power generation still comes from dirty coal.
  • Bitcoin has become a direct challenger to China’s 2060 carbon neutrality pledge.

Power to the people! …or so the DeFi dream goes

Beyond environmental concerns, Beijing is worried about the end uses of many popular cryptocurrencies. Bitcoin is not an accepted payment form in China, and crypto in the mainland has instead primarily been used for three purposes:

  • Speculative investment, which diverts money away from investments in the “real economy.”
  • Bypassing capital controls, which has exposed cracks in China’s strict currency regime.
  • Money laundering, which naturally warrants policy attention.

Bottom line: Don’t get it twisted – while Beijing may be anti-crypto, it is by no means anti-blockchain. China’s CBDC, the digital Yuan, makes significant use of distributed ledger technologies, and policymakers have highlighted the future role of blockchain as a strategic emerging technology within its recent 14th Five-Year Plan. While regulators may be digging in for a siege against crypto, policymakers continue to stand behind blockchain technology as a powerful driver of future Chinese industry, particularly in areas of finance, supply chain, logistics, and more.

Industry | Policy

Didi Gets a Spell of SAMR’s Bad Juju Juice

China’s regulatory showdown is brewing some bad juju juice for Didi Chuxing, the nation’s ride hailing giant. In the run-up to the firm’s IPO, the ever-present and increasingly notorious State Administration for Market Regulation has reportedly launched an antitrust probe into Didi.

Chinese regulators are investigating whether Didi participated in anti-competitive practices to crush smaller rivals via unfair nontransparent pricing algorithms. As SAMR’s crackdown over the past year weighs on a wide basket of tech stocks, this probe could spell trouble for Didi’s expansion plans.

Didi is reportedly seeking up to US$7 billion at a valuation of around US$70 billion to expand further out of China and introduce new products. This would be the biggest Chinese IPO on a New York exchange since Alibaba’s massive US$25 billion offering in 2014.

Bottom line: According to Didi’s IPO disclosures, regulators met with more than 30 internet giants during the month that the probe was launched, suggesting that Didi is not being specifically targeted. Still, for many, the investigation conjures up some spooky déjà vu to the ill-fated case of IPO-bound Ant Group at the end of 2020. Nonetheless, it’s anticipated that Didi’s possible antitrust offences will be met much more lightly, and that the IPO show is likely to go on as planned.

Economics | Trade

Oh My! Time To Say ‘Buh-Bye, CAI’

The European Parliament has bid adieu to the “Comprehensive Agreement on Investment” (CAI) EU-China pact as the two nations fall out of amour.

This nearly historic pact would have offered European firms unprecedented access to the Chinese market, eliminated trade barriers like forced joint ventures and technology transfers, and served a host of other juicy perks. But despite strong support for the agreement at the tail end of 2020, the latest Parliamentary vote wasn’t even close:

  • 599 members voted ‘nay.’
  • Only 30 voted ‘yea.’

So, what changed?

After four years of ‘America First’ isolationism, China came out showing a strong hand in EU-CN relations. Bilateral trade was at highs, negotiators were finally making progress, and bilateral criticisms remained hushed. Breaking from the norm, even as the US sanctioned Chinese officials for their role in Hong Kong and Xinjiang in early 2020, the EU’s response was slow to follow nearly a year later.

Sanctions take their toll

But everything changed when the sanctions came. As the EU slapped penalties on Chinese officials for human rights violations, Beijing immediately upped the ante and responded with measures of their own. With sanctions imposed on some of the very individuals voting on the EU-CN CAI deal, the European Parliament has said ‘ta ta for now’ as it pauses the deal.

Bottom line: China was closing in on an unprecedented relationship with the EU. Many EU countries were either formally or informally engaged in BRI-related investment deals, and CAI could’ve taken the love affair to new heights. Yet, as cozy as the couple once was, now it seems the only thing they can agree on is that the good times may just be in the rearview mirror.

Finance | Technology

China’s Digital Yuan Paves the Way for Global CBDCs

Central Bank Digital Currencies (“CBDCs”) could well be one of the most profound developments of the 21st century. This article takes a look at the impact, motivations, and policy choices available to Central Banks and contrasts them with how China’s PBOC is proceeding.

Full Article

Further Reading

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