Why is Bitcoin still so popular in China?

     Aiga Gosh is a scholar who studies international law at the Chinese University of Political Science and Law. She briefly explores China’s economic history, RMB exchange rate controls, and the rise of Bitcoin.

     China's monetary policy and currency have been a mess for a long time. China only established a unified management in 1994, and the official exchange rate abandoned a dual system and adopted a mechanism of fixed interest rates and market existing interest rates in parallel.

     He has tight controls on the flow of capital across its borders, which allows the Chinese government to harness the economy and control commerce.

     As The Economist wrote in 2010, China's approach to monetary policy has been incremental. In 2009, China introduced reforms to allow goods exported to China to be priced in yuan, rather than dollars, and for companies to earn on deposits offshore, despite low interest rates, as most business is done in Hong Kong.

     Since then, more and more deposits and some companies have begun to seek them out, but the offshore and onshore markets are still strictly controlled and separated: companies cannot borrow RMB from the mainland, they must earn it through trade.

     Generally speaking, RMB flows out of China only when goods or services flow in. It is also difficult for offshore RMB to return to China, as the currency represents the underlying assets of a country.

     China has signed currency swap agreements with Argentina, Belarus, Hong Kong, Indonesia, Malaysia, and South Korea. Further, this has begun to allow certain countries to use RMB to pay for Chinese imports, and now allows companies headquartered in Shanghai and four cities in southern Guangdong Province to use RMB to pay for goods imported into China.

     Do these measures make capital accounts convertible? As governments weigh the pros and cons of opening up capital flows, Bitcoin seemingly overnight does just that.

Why is Bitcoin successful in China?

     One of the reasons for Bitcoin's success in China is that it already had experience using the virtual currency Q Coin as early as 2002.

     Q coins are issued by Tencent QQ, an instant messaging software with 800 million active users, providing various services such as online social games, music, shopping, and microblogging.

     From my experience, when asked about the email addresses of Chinese people, 4 out of 10 use QQ.

     Q coins can be purchased through banks, telephones, or Q cards, with an official price of 1 yuan, and can be used to purchase Tencent services such as greeting cards and online games.

     On top of existing virtual currencies the fact that Bitcoin gives people the opportunity to transfer money out of China and transact with international merchants and customers is particularly important when there is currently a 35,000 yuan ($50,000) limit on overseas investments.

     Chinese bitcoin exchanges, such as OKCoin, BTCC and Huobi, do not charge transaction fees, making it faster and cheaper to send money using bitcoin than using traditional Western Union wire transfers.

     This is very important for the millions of Chinese students and people working overseas.

     Zennon Kapron, owner of a Shanghai-based consulting firm and an expert on economic technology, told Coindesk that the main experiments in Bitcoin in China are trading and manufacturing mining machines and mining. He believes that this is the point, and Bitcoin is unlikely to cause an economic revolution in China.

     Kapron lives in China, where bitcoin has become accepted and useful in everyday transactions. That may be changing. Transaction fees in China are lower than in Western countries, where Alipay and WeChat Pay dominate the mobile and non-bank payments market.

     While this may be true in mainland China, it is in Taiwan where Bitcoin seems to have really taken off.

     Thousands of stores in Taiwan have started accepting bitcoin purchases, including FamilyMart, OK mart, Hi-Life stores and the largest chain 7-11, starting in 2015.

     On Maicoin or BitoEX, users need to use the app or web wallet to generate an order to buy Bitcoin, then hand over the cash to the store manager to complete the transaction, or use a common ATM. For stores, users need to show the QR code on their phone or tablet for the cashier to scan.

     This is a good opportunity for those in the mainland to see whether Bitcoin will increase its user base and daily adoption.

Regulation

     In China, as well as Taiwan, the biggest obstacle is registration and approval. The People's Bank of China issued a statement on Bitcoin on December 5, 2013. It does not allow financial institutions and third-party payment institutions to directly trade Bitcoin. Bitcoin is legal for private ownership and trading, and Bitcoin trading platforms are allowed to continue operating.

     After the announcement, the global price of Bitcoin dropped by more than 20% from its record high of $1,100. The announcement had a dramatic effect on Bitcoin trading platforms across the country.

     Such a cautious decision was not surprising to the Chinese authorities, who were seeking to clear direct risks from the financial system that could undermine China's economic growth.

     In places like China’s Shanghai Free Trade Zone, established in September 2013 to experiment with a variety of foreign investment, arbitration, and legal services, as well as the implementation of an e-economy across the country, Bitcoin has been left aside and watched from afar.

     In my opinion, the Chinese government will first monitor the development of Bitcoin worldwide, then adopt the best regulatory approaches regarding Bitcoin (the UK and the US would probably be a reference) and modify them to suit Chinese characteristics.

     As for now, it is clear that the "Bitcoin fever" is not over yet, and it will be interesting to see how China develops next. The main question now is: Can Bitcoin affect the current financial system and use of money in China? If so, what policy implications will it have?