The Asian giant wants to eliminate the country's bitcoin mining industry because of concerns about excessive electricity consumption and financial risk.
China will take steps to eradicate the country's bitcoin mining industry in the face of concerns about excessive electricity consumption and financial risk, reflecting the authorities' view that cryptomoney is not a strategic industry.
A task force with representatives from various agencies has instructed provincial governments to "proactively push" companies in their respective regions to abandon the cryptomonet mining industry, as reflected in a document to which the Financial Times has had access. The decision to put pressure on mining companies follows the closure of local bitcoin exchanges and the ban on initial coin offers.
Miners create new bitcoin by solving complex mathematical problems whose solutions are used to validate new bitcoin transactions. Although apparently an IT task, the dependence on processing capacity makes the process more like industrial manufacturing than traditional high-tech businesses.
Many bitcoin miners have established operations in remote areas without even registering a company. Some have even circumvented Chinese regulations that prohibit end-users from buying electricity directly from energy producers, not from grid operators.
China mines about three-quarters of the world's bitcoin, according to Liao Xiang, managing director of Lightningasic, a Shenzhen mining operation. Chinese miners have taken advantage of cheap electricity from coal-rich or hydropower regions such as Xinjiang, Inner Mongolia, Sichuan and Yunnan.
Digiconomist, an Internet portal that tracks the evolution of the industry, explains that it accounts for 0.17% of global electricity consumption, more than 161 countries.
The Chinese government invests and implements various industrial policies with the aim of taking the lead in strategic sectors such as artificial intelligence and robotics. But the action against bitcoin reflects that it does not see cryptomoney as worthy of state support.
Bitcoin mining "consumes a lot of electricity and also fosters an atmosphere of speculation with' virtual currencies',"according to the document. Mine operations contradict efforts to prevent financial risk and discourage activities that "deviate from the needs of the real economy,"he added.
The working group on Internet finance, which includes the People's Bank of China, has already led in the past the regulatory adjustments on consumer credit and online consumer lending.
The order does not ask the regional authorities to close down mining operations directly, but to force their disappearance by strictly enforcing policies on electricity consumption, land use, tax collection and environmental regulation.
Chinese mining companies are now looking for ways to move their operations abroad, either by displacing factories or selling their expertise. Cheap electricity and cold weather, which helps prevent computer overheating, are the main requirements. Canada, Iceland, Eastern Europe and Russia are considered to be the most promising destinations.
Industry players argue that China was never in any case a particularly suitable location for mining, even taking into account electricity costs in the selected regions, which are below the national average. China's current dominance is mainly due to the good quality of the supply chains of the components used in the mining process.
"The difficulty is that settling in other countries requires time and capital to build large-scale data centers,"Liao said. "It consumes a lot of electricity. And the typical industrial park does not meet the requirements.