China has a convoluted history with bitcoin, crypto, and blockchain technology. During a recent interview with CNBC, one investor described how China has a “love-hate” relationship with crypto.

On the one hand, China loves crypto because it plays a small but significant role in the Chinese economy. The world’s largest crypto miner manufacturers – including Bitmain – are based in China. Some of the world’s biggest crypto mining farms are in China. Numerous blockchain companies are located in tech centers like Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong.

The China Internet Report found that 41% of new Chinese companies that received funding in the first quarter of 2017 were blockchain-related. China’s largest companies, including Baidu, Alibaba, and Tencent (the so-called “BAT” trio) are all actively building or investing in blockchain.

On the other hand, China has reason to hate bitcoin. The Chinese government likes to control what its citizens see, hear, and consume. Critics claim the value of the Chinese Yuan has been manipulated for years to prop up China’s economic prowess. While China has some control over bitcoin (through regulatory decisions), most of bitcoin’s power is decentralized.

In an interview with CNBC, Edith Yeung, head of 500 Startup’s China, explained the complex relationship between the Chinese government and crypto. Yeung made the statements during East Tech West.

Yeung touched on China’s complicated history with blockchain and crypto.

The country’s battles with crypto began in 2013. In late 2013, the Chinese government began taking action against Chinese citizens who traded, purchased, or used cryptocurrencies like bitcoin. On December 5, 2013, China announced that it was banning Chinese banks from handling bitcoin transactions.

The ban had a devastating effect on crypto markets at the time. In the early days of crypto, a significant amount of trading volume came from China.

Here’s how the Financial Times reported the ban at the time:

“China has banned its banks from handling Bitcoin transactions, after surging demand from Chinese investors helped drive a 5,000 per cent appreciation in the much-hyped virtual currency this year.”

The ban severely weakened bitcoin’s brand image and cast doubt on bitcoin’s ability to become a global currency.

By autumn 2017, China had banned cryptocurrency exchanges and ordinary consumers from trading cryptocurrencies. This sent the market into a brief downturn, although it quickly recovered to reach an all time high before the end of the year, proving to the world that crypto didn’t need the support of China to succeed.

Yeung believes that China’s relationship with blockchain and crypto can be summed up like this:

China loves blockchain technology, but it hates cryptocurrencies.

The Chinese government recognizes the potential of blockchain technology. They recognize that blockchain can transform industries and create a more efficient world.

However, they also recognize how destabilizing cryptocurrencies can be. Cryptocurrencies lie outside the control of centralized governments. China, which has grown into an economic powerhouse partly through currency manipulation, has reason to fear the emergence of cryptocurrencies.

As proof that China loves blockchain technology, Yeung cites government funding towards blockchain projects.

As reported by CNBC:

“New funding has come from Shenzhen, after it established a 500 million ($71.9 million) yuan fund for blockchain investments. Hangzhou also announced plans to invest 10 billion yuan in a blockchain fund. The sector also has central government support from President Xi Jinping who ordered the use of blockchain technologies to create a smart city for the Xiongan New Area economic zone.”

Yeung also mentioned a study from her own organization indicating that a large number of companies receiving funding were operating in the blockchain space:

“Blockchain start-ups are also seeing investment growth. The report highlights that the 41 percent of new Chinese companies that received funding in the first quarter of 2017 were blockchain-related.”

Moving forward, Yeung expects the Chinese government to continue to express interest in blockchain technology. The Chinese government reportedly sees particular potential in the enterprise uses for blockchain technology.

Yeung also mentioned healthcare, logistics, identity management, and digital asset tracking as other industries that can benefit from blockchain.

Meanwhile, China’s largest companies are actively exploring blockchain technology. Baidu, Alibaba, and Tencent, for example, are all exploring blockchain technology in different ways. Alibaba partnered with the city of Changzhou in August 2017 to launch China’s first blockchain technology platform in the health sector, for example.

Nevertheless, it seems unlikely that China will embrace cryptocurrencies in the near future. As Yeung continues to emphasize, China loves blockchain technology but hates cryptocurrencies. It remains to be seen if China can embrace one but not the other.

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