Exclusive: Local government issues document to support Fengshui mining, Sichuan may open up on a large scale for the first time in 18 years

Wu Blockchain learned that the People's Government of Ya'an City, Sichuan Province, has recently officially issued the "Implementation Opinions on Building a Hydropower Consumption Demonstration Zone to Support the Development of the Blockchain Industry". Sources pointed out that this may be the first time in 18 years that a local government has issued a document to support mining during the flood season, which is very rare. There are also reports that more areas in Sichuan may be opened one after another.

This implementation opinion document points out that we must give full play to the city’s advantages in hydropower resources, seize major strategic opportunities for the development of the blockchain industry, promote the healthy and orderly development of blockchain technology and industry, promote the high-quality consumption of hydropower resources, and cultivate new growth points for the city’s economic development.

The document also stated that the market's decisive role in resource allocation should be fully utilized to form a win-win situation with sufficient hydropower consumption and healthy and orderly development of the blockchain industry, and Ya'an should be built into an influential blockchain industry cluster in the country.

The document states that it is necessary to actively introduce leading blockchain companies and determine the user electricity price in accordance with the method of "transaction electricity price + transmission and distribution price + government funds and surcharges". However, it also requires electricity users to invest more than 5 million yuan; have IDC qualifications, engage in blockchain research and development and related technological innovation activities, have relevant qualifications or certificates, and sign a formal "Power Supply and Use Contract" and "Grid Connection and Dispatch Agreement" with the power supply company.

70% of the world's cryptocurrency mining farms are in China, and 70% of China's mining farms are in Sichuan. Southwest Sichuan, including Ya'an, and the Dadu River Basin gather most of the world's computing power. When the flood season comes, the electricity price may be lower than 0.2 yuan.

In August 2019, the General Office of the Sichuan Provincial Government issued the "Implementation Plan for the Construction of Hydropower Consumption Industry Demonstration Zones in Sichuan Province", which determined that six cities and prefectures, including Ganzi, Panzhihua, Ya'an, Leshan, Liangshan, and Aba, would carry out pilot projects for hydropower consumption industry demonstration zones. These areas are remote and have poor transportation. It is almost impossible for heavy industries with large electricity consumption to invest in the area. The only ones that actually consume electricity are mining companies.

The Implementation Plan provides two electricity price calculation methods for power users to choose from. One method is the annual comprehensive electricity price, where the transaction price is negotiated and determined by power users and power generation companies at a level not higher than 0.22 yuan per kilowatt-hour, and the transmission and distribution price is implemented at a single system of 0.105 yuan per kilowatt-hour. The other is to calculate based on the abandoned hydropower electricity price, which refers to the electricity price formation method when power users only use abandoned hydropower from May to October.

However, miners have mixed reactions to the local support policies in Sichuan.

Some miners believe that it is a good thing that the industry is recognized by the government and is moving towards compliance, which can reduce miners' concerns about policy changes. However, some miners believe that after the release of the document, private connection to power generation companies is not allowed, and government funds will be increased, which will increase the cost of mining farms. Especially after the Bitcoin output is halved, the mining farm's income is likely to be halved. Many previous generation mining machines are shut down and cannot accept the cost increase brought by compliance.

Another document from Baoxing County, Ya'an, obtained by Wu Blockchain also emphasized the need to "focus on cracking down on illegal acts such as some power generation companies arbitrarily transferring power to other parties, disrupting the order of power supply and use, and endangering the safety of the power grid, and effectively ensuring the normal power supply order."

The only statement made by the Chinese government regarding mining/mines was on January 2, 2018, when the Internet Finance Risk Special Rectification Office Leading Group (hereinafter referred to as the Internet Finance Rectification Office) issued an internal document requiring all localities to guide enterprises within their jurisdiction to orderly withdraw from the "mining" business and report work progress regularly. The document pointed out that the mining industry wastes resources and encourages virtual currency speculation.

In 2019, the National Development and Reform Commission's draft guidance catalogue for industrial restructuring listed cryptocurrency mining as an industry to be eliminated, but this item was deleted in the main text published on November 6, indicating that after lobbying from all walks of life, regulators at the economic and livelihood levels have left room for mining.

The central government, especially the financial regulatory agencies, have a negative attitude towards the mining industry. However, in terms of local conditions, the current energy surplus and serious county and city debt crisis in impoverished areas such as southwest and northwest China make the mining industry a source of revenue that local governments, industries, and people are unwilling to abandon. Therefore, local governments often choose to support it, either explicitly or implicitly, which is also the background for Ya'an's rare document to support mining during the flood season.