Chinese President Xi Jinping wants his country’s economy to become the world’s largest within our lifetimes. He may succeed, thanks ito the desire of western business to sell goods and services to the nearly 2 billion people who live there.
The balance of trade between our two countries is decidedly skewed in China’s favor. The only thing blocking Xi’s ambitions is President Donald Trump, whose tough policies are helping get things balanced so American firms and farmers can compete fairly. At the same time, it’s important not to take eyes off the ball where the development of new technologies is concerned.
China’s expertise in persuading western firms to part with important intellectual property as a condition of doing business in their market is well known. It gives them an edge they cannot generate themselves, even as they’re taking the lead in crucial new technologies, like cryptocurrency.
Recently the Chinese parliament passed a new cryptography law to facilitate “the development of the cryptography business and ensuring the security of cyberspace and information.” In August, the People’s Bank of China announced that after five years of research, it is just about ready to launch a state-backed cryptocurrency that could be used in place of the Yuan. The China Construction Bank has expanded its finance blockchain platform by adding new applications – including cross-chain and inter-bank transactions – as trading volume reportedly surpassed $53 billion, according to Coindesk.com.
These developments are too big to ignore. While the United States busies itself figuring out federal regulations, Beijing’s corporate lackeys are developing and introducing product into the global financial system.
Alarm bells should be going off as the Chinese cryptocurrency industry positions itself to offer the world a product more attractive to global investment dollars than anything under development here. Circle CEO Jeremy Allaire told CNBC’s “Squawk Box” in mid-September, what China’s central bank has planned for its digital currency “is a way for the Chinese yuan to be distributed globally.” If that happens, it would go a long way toward fulfilling China’s long-held ambition to find a replacement for the dollar as the world’s reserve currency.
It’s hard to tell what’s around the next technological corner. As China continues to roll out unchecked applications and developments, it furthers Beijing’s goal of integrating itself into the global financial fabric. Look no further than what’s happening with the Chinese technology firm Huawei and the move to 5G to imagine how that might play out.
China is already the world’s biggest miner of Bitcoin. A June 2018 Princeton University study concluded 80 percent of Bitcoin mining "is performed by six mining pools, and five of those six pools are managed by individuals or organizations located in China." With a simple majority needed to veto or approve Bitcoin transactions, China has essentially gained control over the Bitcoin space.
The U.S. government has a lot of catch up to do, but unfortunately there’s little sign these developments are troubling to policymakers. Dozens of legitimate American companies are working on cryptocurrency applications of their own. But rather than help, the feds are hampering innovation by imposing unconsidered regulation and failing to deliberate the issues at hand properly. In the case of blockchain and cryptocurrency, policymakers are even interfering with innovation and hesitating to defend American companies trying to enter the marketplace.
U.S.-based developers need to know where they stand with respect to the law so they can keep us in the race. U.S. lawmakers must promote American innovation and stem the tide of Chinese crypto control before Beijing gets so far out ahead there’s no possibility of catching them. American innovators deserve better. They need a federal regulatory framework to guide their activities toward breakthroughs that improve our lives, not obstacles that slow them down and let the Chinese retain their lead.
Peter Roff is a senior fellow at Frontiers of Freedom and a former U.S. News and World Report contributing editor who appears regularly as a commentator on the One America News network.
He can be reached by email at [email protected] Follow him on Twitter @PeterRoff.