Chinese Blockchain Investment on the Rise, but Comparison to US Is Apples to Oranges

China is rapidly catching up to the United States with regard to blockchain-related investments, according to a recent report put together by New York-based research firm CB Insights.

The researchers found that the East Asian country accounted for 22% of blockchain investments in 2019, compared to 31% for the U.S. This represents a significant improvement for China when compared to 2015, when it had a meager 2% while the U.S. was getting 51% of total funding.

Headlined by the trade dispute of 2019, competition between the U.S. and China has intensified in recent years. That’s unsurprising considering they’re the two largest economies in the world. At best, however, the findings of this CB Insights report only suggest that U.S.–China competition is intensifying in the blockchain space as well. It doesn’t give a clear picture of which country is ahead in blockchain development.

In addition, given that there is a slew of conflicting blockchain investment reports out there, it’s difficult to say for sure just what proportion of global blockchain investment goes to either country. For instance, according to CB Insights, 2019 saw a global investment volume of about $2.8 billion, down from $4.2 billion in 2018.

Earlier in this year, Xinhua — China’s state-run financial media firm — and financial data platform Rhino Data reported that Chinese investment deals came in at around $3.44 billion (24.4 billion Chinese yuan) across 245 deals in 2019. This represents a 40.8% drop in investment volume when compared to 2018, the report stated.

Experts say that the majority of the investment in China originates locally for now, but they expect more foreign funds in the near future. Kevin Shao of Bitrise Capital Partners told Cointelegraph that:

“Currently, the main investors are mainly domestic venture capital institutions and individual investors as early stage investors. However, we believe that with the increasing internationalization of Blockchain technology, the percentage of foreign investment institutions will increase over time.”

There aren’t any readily available reports focused solely on how much blockchain investment happened in the U.S. last year, but again, the figures from CB Insights mostly show that the blockchain scene in China is picking up. Instead of looking at the figures, it might be worth considering the actual events, including the government’s stance, talent distribution and enterprise involvement to obtain a feel for how blockchain competition is shaping up between the two countries. 

Governmental stance

In October 2019, Chinese President Xi Jinping publicly supported blockchain technology by urging the country to “take blockchain as an important breakthrough independent innovation of core technologies” and to accelerate its development. According to blockchain accelerator Consensys, China has over 500 registered blockchain projects, with most of them led by the government.

As part of its support for blockchain, the People's Bank of China — the country’s central bank — is working to launch a digital yuan, which will be powered by a centralized blockchain. According to reports, the central bank has completed the essential development of the digital currency and is now in the process of drawing up legislation for its circulation. 

The Chinese government’s stance, led by President Xi’s speech, has had two effects on the blockchain development scene in the country. First, it has outlined the future path of the industry. Second, it has made mainstream the status of blockchain and promoted its orderly development, thereby opening more opportunities for new players to enter. Qi Qi, the CEO the of blockchain incubator B-Labs, told Cointelegraph:

“On the capital side, domestic traditional funds are more willing to get involved, especially paying attention to the field of industrial blockchain, which is a big breakthrough for traditional funds and the blockchain industry itself.”

Simon Li, a founding partner at Chain Capital, also told Cointelegraph that “the Chinese government is actively embracing the blockchain and will use it in the government affairs system to create many application scenarios.”

The U.S. government has a somewhat more cautious approach to blockchain. While a few government agencies — mostly military — are exploring the use of blockchain in the country, it’s still hard to say the government is particularly pro-blockchain, and this might limit the flow of blockchain investment in the country. Speaking to Cointelegraph, Sukhi Jutla, the co-founder of MarketOrders — a blockchain platform for the jewelry industry — said:

“Although the U.S. is still a key leader when it comes to blockchain investments, it cannot compete with China. The US is hindered by regulations that are slow and don’t keep pace with the innovations of technology. China is able to move with speed as their governments allow them the space to do what they need to do.”

Jutla added, “Many companies are bogged down by uncertainty and the threat of being sued as the regulations cannot keep pace with the fast-moving technology.” Last year, Congress asked Facebook to stop advancing the cryptocurrency project Libra without proper supervision. The Securities Exchange Commission also continues to block Telegram’s plans to launch its TON project. Still, the country has no clear plans for developing its own blockchain-based digital money.

U.S. leads talent distribution

The availability of talent is next to governmental influence as a determinant factor of investment flow, and experts believe the U.S. is ahead of China in the area of technical personnel. Kevin Ren, a founding partner at Consensus Lab, told Cointelegraph that despite the Chinese government being outwardly more supportive of blockchain, the U.S. has the edge thanks to the availability of talent:

“Due to the shortage of technical personnel and infrastructure, China's current level of development in the area of blockchain still lags behind that of the United States. For example, the blockchain 3.0 project, such as Polkadot, Cosmos, etc., which currently leads the technological trend of blockchain, is mostly still a U.S. project.”

Li also believes the U.S. has superior technical prowess. In a conversation with Cointelegraph, he said that “there is still a certain gap between our technical level and that of the United States, but China sees great improvements in recent years, and the gap gets gradually narrowed.”

China could lead in adoption

China is famed as one of the countries where the adoption of new technology picks up the fastest. A 2018 report titled “Me, My Life, My Wallet” published by accounting giant KPMG found that consumers in China tend to be more receptive to new technologies, ahead of other top markets including the U.S., the United Kingdom and others.

This is evident in the area of mobile payment, where China leads the rest of the world in adoption. Ren believes that this readiness to pick up new technologies will give China the edge over the U.S. in the mid- to long-term, saying:

“China's population base and netizen base, its ability to accept new things (Internet enterprises have completed user education through mobile payment and online shopping), and the constant supply of talents are the kinetic energy for China's blockchain to make great progress.”

Brian Platz, the co-founder of Fluree — an American company that builds blockchain-based databases — told Cointelegraph that China’s competitive advantage goes beyond its technology-receptive populace. According to Platz:

“China may be leading in terms of adoption of digital and mobile payments, but that's only a piece of the blockchain pie. China is also heavily investing in enterprise blockchain infrastructure — noting a clear thesis that blockchain technology can provide value across a variety of contexts. This is a powerful combination of adoption — one that the U.S. should take seriously and accelerate plans to compete.”

However, citing the opportunity for private enterprises to innovate more rapidly, Platz — whose company is backed by Steve Case’s venture capital firm Revolution — believes that the U.S. can be the leader ahead of China in the blockchain scene, adding:

“One clear advantage the US does have over China is the opportunity for private enterprise to freely innovate at a rapid pace. It's time to double down on enterprise blockchain efforts, garner support from the government, and build a competitive blockchain industry here in the US.”

Enterprise involvement

It has been widely reported in recent years that the majority of blockchain-related patents are held by Chinese entities. Technology news website The Next Web reported in March 2019 that Chinese entities had published 790 patents, while the U.S. had published 762. These figures represented the total, all-time patent publication by these countries.

However, the publication of patents in China appears to be dominated by a few entities, given that the number of U.S. enterprise players invested in blockchain is significantly more than that of China. The business publication Forbes recently compiled a list of the top 50 enterprises that have invested into blockchain, and the list is dominated by American firms across different sectors. 

To be on the list, the company had to be generating at least $1 billion in annual revenue or have a valuation of at least $1 billion. American companies took up 58% of the list with 29 entries, while only four Chinese companies were featured.

Divergent blockchain development paths

The answer to who is ahead in blockchain development between China and the U.S. depends on who is asked and how they best see the application of blockchain in reality. The two economic giants are following different development paths, with blockchain advancement in China spearheaded by the government and development in the U.S. spearheaded by corporate enterprises.

According to Shao, blockchain development in the two countries is evolving in different directions, making it difficult to declare a clear leader. He stated:

“Compared to the United States, China is taking a different path and we cannot compare which path is better or more advanced at the time. China's blockchain industry is focusing on governance, finance and civil fields. But in the financial-related fields, the Chinese government is more cautious and strict compared to the U.S. government.”

James Wo, the CEO of U.S.-based Digital Finance Group, also believes that the two countries are approaching blockchain development differently. He said:

“I think they have different directions. U.S. cares more about solving infrastructure-level problems including interoperability, scalability etc. While China cares more about the usage of blockchain.”

On the other hand, the CEO of B-Labs believes that both China and the U.S. are at the forefront regarding blockchain technology, but the narrative should be that of cooperation:

“All the issues that have happened recently make us realize the meaning of ‘a community of shared future for mankind,’ and aware that global technological cooperation is an essential element for building such a community, in the way from R&D, patents, talent cultivation and beyond.”