Blockchain technology heats up after Beijing's backing as driver of growth

The financial sector has jumped to embrace blockchain, a controversial technology that became a hot topic over the weekend after the Chinese leadership decided to strengthen investment in the area.

Animated discussions broke out on social media between regulators, professionals and experts in the financial industry about the development in China of blockchain, a digital ledger system that uses sophisticated cryptographic techniques to create a permanent, unchangeable and transparent record of exchanges to trace transactions.

The stock prices of companies involved in blockchain soared on Monday－93 blockchain stocks reached the daily trading up limit of 10 percent, including Zhejiang Huamei Holding Co and Julong Co. The Shenzhen Information Technology Index rose 5.3 percent on Monday, the largest rise in about eight months.

The new technology has been identified as a key driving force for economic growth－the first time it has been endorsed by the country's top decision-makers.

Xi Jinping, general secretary of the Communist Party of China Central Committee, urged on Thursday that more efforts be made to quicken development of blockchain technology, highlighting its important role in the new round of technological innovation and industrial transformation.

He said deep integration of blockchain with the real economy should be promoted to solve problems such as financing difficulties for small and medium-sized enterprises, risk management in banking and government agency supervision.

Commercial banks should pay special attention to the application of blockchain in their digitalization to develop applications and strengthen innovation, said Li Wei, director of the technology department of the People's Bank of China, the central bank, at a financial forum on Monday.

The nation's foreign exchange regulator is also studying the use of blockchain and artificial intelligence to enhance cross-border trade financing, as well as preventing capital flow risks, Lu Lei, deputy head of the State Administration of Foreign Exchange, said on Sunday.

"We should pay special attention to the quick development of digital finance and financial technology," Lu said.

Since its inception more than a decade ago, blockchain has brought a mix of hopes and fears to investors, experts and policymakers across the world.

The technology creates a system of records and processes transactions via a distributed network. It underpins applications from cryptocurrencies like bitcoin to crossborder payments and credit information recording systems.

"In order to use the technology in a proper way, first of all, we need to deeply understand it and know exactly what its advantages and disadvantages are," PBOC official Li said on Monday at the Bund Summit, the forum organized by the financial think tank China Finance 40.

Blockchain is a significant emerging technology to promote innovation in the digital economy, but the "bottom line" is to ensure it will not lead to financial risks or threaten privacy, Li said.

New financial technology has drawn the attention of financial regulators. Improvement in regulation via blockchain is on the working task list of regulators, according to the central bank.

Beyond the financial sector, blockchain also can be used broadly to improve business models, upgrade supply chains and help businesses improve client relationships.

Huang Qifan, deputy head of the China Center for International Economic Exchanges, said blockchain, much like advanced "gene transformation technology", can change the basic functions and applications of digital platforms and constitutes a major driving force for the economy.

New technology, such as blockchain and digital currency, usually comes with potential risks to financial stability, integrity, consumer protection and privacy.

"How countries can design legal frameworks that maximize the benefits of new technologies" is an important issue with frontier technologies in the international monetary system, said Liu Yan, assistant general counsel at the International Monetary Fund's legal department.