THE CHINESE STATE’S ECONOMIC REFORM CABINET REMOVE BITCOIN MINING FROM THE LIST OF INDUSTRIES TO BE ELIMINATED

Quick take;

China’s NDRC remove Bitcoin mining from industries to be phased out in their final version of a catalogue advising local governments on which industries to encourage and which to phase out

FUD surrounding the NDRC earlier this year may have been overhyped as policies set forth by the NDRC may not be executed by local governments

China’s National Development and Reform Commission (NDRC) has removed Bitcoin mining from the list of industries to be phased out. China’s NDRC is one of many departments that form the State Council of the Chinese government.

The NDRC’s main responsibility is to make policies for economic development mainly targeted at the local government level. The department publishes a catalogue to advise local governments on which industries are to encourage and which to actively shut down.

The catalogue place industries within three category types – encourage, restrict, or eliminate. In a draft proposal of the catalogue published on April 8th this year, Bitcoin mining was proposed as an industry to be eliminated.

The proposal has since been open to public comment. While there was a considerable amount of FUD in Western media outlets at the time the proposal was published, there has been no official update until now.

NEW GUIDELINES REMOVE BITCOIN MINING

The NDRC published its finalized catalogue on the 6th of November. This finalized version has removed Bitcoin Mining from the “eliminate” category.

The finalized catalogue will take effect on January 1st 2020. The agency noted receiving over 2,500 comments on the proposal draft published on April 8th.

BITCOIN MINING BAN OVERHYPED?

The widely publicized “China Mining Ban” speculation may have been drastically overhyped. It has been pointed out that industry policies set out in the NDRC’s catalogue do not always provide local governments with a legal basis for shutting down businesses associated with the industry.

Furthermore, local governments are also advised to take into account local interests and economic development. In many cases, shutting down Bitcoin mining may conflict with local interests, given the large amounts of energy they purchase from local power providers that otherwise would be wasted.

Abundant energy produced in Southwestern provinces such as Sichuan and Yunnan during rainy season are far in excess of what can be locally consumed and transmitted through the grid. Sichuan holds a dominant share of Bitcoin network hash rate as miners can secure attractive power deals in the region and also benefit the local economy by generating revenue and jobs.

There are clearly several reasons for local governments to look favourably upon the industry. CoinShares have previously noted the disconnect between national and local governments and the difficulty in outright banning the industry.

“Chinese miners already operate in a legal grey area, with large differences in treatment between local jurisdictions, and concrete, large-scale coordinated action on the ground would likely be required to effectively uproot miners… there appears to exist significant differences between local and national treatments of the mining industry, with certain local governments seemingly much more inclined to view the industry positively due to its vigorous revenue generation on municipal levels." CoinShares May 2018 Mining Report

RECENT DEVELOPMENTS

Although not explicitly linked to the NDRC’s updated stance on Bitcoin mining, there has been a number of recent relevant developments. Firstly, Xi Jinping made extremely positive comments on blockchain technology on October 24th, possibly leading government departments to view Bitcoin mining in a more positive light.

These comments came shortly after the announcement that the Chinese central bank would be issuing its own digital currency. However, this development could also be considered from the viewpoint that Bitcoin poses a threat to the success of the Chinese central bank’s digital currency.

On the local level, a Sichuanese policy advisor has voiced his support for the Bitcoin mining industry and urged the region to remain attractive to the industry. Crypto mining may be mixed with uncertainties and conflicting opinions but the removal of the industry from the NDRC’s “eliminate” list is certainly a positive development for the current state of mining in China.