Can Hainan protect virtual currency exchanges Huobi and OK?

Just a year ago, he was so troubled by rights activists that he was even blocked by the police station.

In recent days, China's largest virtual currency exchanges OKcoin and Huobi have been performing on the same stage with local government departments in Hainan, becoming local star companies.

It is worth noting that at the two high-profile events in Hainan, no high-level central government officials or officials from the financial system were present.

At the same time, the crackdown on virtual currency transactions, led by the Central Bank and the Internet Finance Regulation Office, and participated by the Ministry of Public Security and the Cyberspace Administration of China, is still in full swing. Beijing police announced that they had cracked the BISS fraud case of illegal digital currency exchange and arrested dozens of suspects. It is said that even interns were not spared.

Can Hainan, China’s southernmost province, provide shelter for virtual currency exchanges Huobi and OK, whose staff have not yet left China and whose customers are mainly Chinese citizens?

In my opinion, it is almost impossible for Hainan to reform its digital currency model and virtual currency transactions, but it can indeed provide certain local government protection for virtual currency exchanges in terms of corporate security and personal safety.

The cryptocurrency world is in the midst of a cold winter. Do entrepreneurs feel the warmth in Hainan?

Regulators can have a “super private key”

The private key is the most important and private thing for people in the cryptocurrency world. It is equivalent to the password of a bank card.

OK Group founder Xu Mingxing proposed the concept of "super private key" in Hainan, saying that "the state or regulatory agency can have a super private key to control data" and terminate a transaction at any time. This is similar to his previous statement of "giving it to the state at any time", and his attitude of embracing regulation is self-evident.

A few days after OK Group announced its entry into the Sanya Innovation and Entrepreneurship Pilot Zone, Huobi China hosted the Hainan Free Trade Port Digital Economy and Blockchain International Cooperation Forum.

Huobi Group founder Li Lin said at the event that in 2020 Huobi will combine Huobi Cloud and Huobi Chain to release "Huobi Cloud 2.0" to create an overall solution for digital currency issuance and payment, and digital asset financial markets based on blockchain.

In the past, Huobi Cloud was positioned as a "one-stop solution for digital currency exchanges", and digital currency exchanges are exactly the projects that the central bank has again called for a crackdown on and prohibition. Li Lin intends to transform Huobi Cloud from providing services purely for exchanges to providing services for governments, digital currency issuance, and blockchain projects.

Just a few days ago, the sudden collapse of Huobi's system sparked speculation, and there were even rumors that Huobi's Hainan building was sealed off by the police that went viral online. Huobi responded that it was fake news.

Another project invested by Huobi investor Du Jun, Chainup, which is similar to Huobi Cloud and provides services and solutions to digital currency exchanges, is rumored to be under investigation for allegedly providing services for pyramid schemes. The company was quickly deregistered, and Du Jun's signature was on the deregistration commitment letter.

No central government officials were present

It is worth noting that the Hainan Free Trade Port Digital Economy and Blockchain International Cooperation Forum, hosted by Huobi, claimed to have invited 14 ministers from more than a dozen “Belt and Road” countries and regions including Indonesia, Singapore, and Kazakhstan to attend the forum, but the highest Chinese official attending the forum was Wang Lu, Vice Governor of Hainan Province.

Although he did not attend the event, Hainan Provincial Party Secretary Liu Cigui stated in the PPT that "we will accelerate the construction of the Hainan Free Trade Zone (Port) Blockchain Pilot Zone, support the implementation of the 'Chain Hainan' project, create a number of key projects and demonstration projects, and create an inclusive regulatory innovation environment."

The author observed that no current senior officials from the central government or the financial system attended, and neither the governor nor the secretary of the Hainan Provincial Party Committee attended. However, in order to boost momentum, the organizers invited retired officials such as the former vice minister of the Ministry of Science and Technology and the former vice chairman of the China Banking Regulatory Commission.

At the meeting, Wang Jing, Director of the Department of Industry and Information Technology of Hainan Province, announced the "Six Chain" initiatives of the Hainan Free Trade Zone (Hong Kong) Blockchain Pilot Zone. The content was nothing new, but just talked about actively striving for a relaxed innovation environment required for the development of the new "blockchain +" business model.

Whether Hainan's attraction to digital currency companies is the result of local wishful thinking or the central government's instruction, all indications suggest it is the former.

Is there hope for Hainan?

Historically, Hainan has carried out many reforms, but most of them have failed.

In August 1988, the "30 Articles" that caused a sensation across the country - "Several Provisions of the Hainan Provincial People's Government on Implementing the State Council's Document No. (1988) 26 to Accelerate the Development and Construction of the Hainan Special Economic Zone" were issued. The document's support for foreign trade was even greater than that allowed by the central government's documents, and it fully reflected the three "freedoms of entry and exit": freedom of capital entry and exit, freedom of foreign personnel entry and exit, and basic freedom of goods entry and exit. This was unique across the country at the time, and made Hainan, a new special economic zone, "even more special than special economic zones."

At that time, people from all over the country were going to Hainan, including many entrepreneurs who are famous today.

In 1991, Hainan's GDP grew by 14.9%, but in 1992, the GDP growth rate soared to 41.5%. This abnormally high growth was mainly caused by the false increase driven by real estate speculation. In June 1993, the State Council issued macro-control measures to strictly control the scale of credit. As a result, Hainan's real estate bubble officially burst, and the GDP growth rate, which had been ranked first in the country for three consecutive years, became the last in the country for three consecutive years.

The full text of the 2018 "Guiding Opinions on Supporting Hainan to Comprehensively Deepen Reform and Opening Up" was released, reminding people of the 30 articles 30 years ago. However, the most eye-catching content is the encouragement of horse racing. For finance, there is a whole paragraph requiring strict supervision, "effectively perform local financial supervision duties, build a financial macro-prudential management system, establish a financial supervision coordination mechanism, strengthen the identification of major risks and the prevention of systemic financial risks, and severely crack down on financial crimes such as money laundering, terrorist financing and tax evasion."

Under the current background of strong financial regulation and virtual currency regulation, it is almost impossible for Hainan to make reforms. Regardless of history or current situation, Hainan does not have the ability to carry out financial reforms and financial regulation. Choosing Hong Kong, Shenzhen, Shanghai, and Beijing to take the lead in launching digital currency reforms is a more likely choice.

However, insiders also revealed that although Hainan is unlikely to open virtual currency transactions, because officials attach great importance to it, they can provide certain protection for enterprises and entrepreneurs. Previously, Beijing arrested exchange personnel for fraud and Shenzhen listed 39 illegal virtual currency companies, which made people panic. In the future, more blockchain companies will move to Hangzhou, Hainan and other places where the government has a better attitude.