Hong Kong professor calls China's crypto mining ban 'unwise', suggests opening up to digital assets

A professor at the Hong Kong University of Science and Technology (HKUST) has questioned the logic of China's cryptocurrency mining ban, suggesting that the government should embrace virtual assets amid geopolitical risks.

Completely banning crypto mining in China was "very unwise" as it drove related businesses to the United States, which contributed to US tax income, Wang Yang, vice-president for institutional advancement and chair professor at the Department of Mathematics at HKUST, said during a panel discussion in Hong Kong last week.

China could have directed state-owned enterprises to take up shares in domestic crypto mining firms to control risks such as capital outflows and money laundering, Wang said at the event on June 26, hosted by Hong Kong virtual asset firm HashKey Exchange.

Wang is the latest to question China's hostile stance towards cryptocurrencies, as Beijing continues its crackdown on the industry on the mainland despite supporting Hong Kong's efforts to develop the sector.

HKUST vice-president for institutional advancement, Wang Yang. Photo: Handout alt=HKUST vice-president for institutional advancement, Wang Yang. Photo: Handout>

The strict approach on the mainland side has cast a shadow over Hong Kong's ambitions of becoming a virtual asset hub, as some crypto exchanges have withdrawn their licence applications in the city.

Hopes that China would open its market to the cryptocurrency industry have grown in recent years as the special administrative region of Hong Kong made moves to build a virtual asset sector. The efforts included licensing crypto exchanges and launching exchange-traded funds that invest directly into cryptocurrency tokens, even though Chinese regulators have given no indication that they would allow the same on the mainland.

After banning initial coin offerings and ordering the closure of exchanges in 2017, the Chinese government went even further by banning bitcoin mining in 2021 and declaring all cryptocurrency-related businesses illegal, saying they disrupted economic and financial order and were a breeding ground for criminal activity.

In late 2022, Chinese economist Huang Yiping, a former member of the monetary policy committee at the People's Bank of China, said in a speech that China should consider whether its rigid cryptocurrency ban was sustainable in the long run as it could result in missed opportunities in technologies such as blockchain. Such technologies are "very valuable" to regulated financial systems, Huang said at the time.

The potential for Hong Kong to be a gateway for crypto firms to access the sizeable mainland China market was a major theme at a bitcoin industry conference in the city earlier this year.

Hopes that China would open its market to the cryptocurrency industry have grown in recent years. Photo: Shutterstock Images alt=Hopes that China would open its market to the cryptocurrency industry have grown in recent years. Photo: Shutterstock Images>

In an interview with the Post last month, Brock Pierce, co-founder of the largest stablecoin Tether, suggested that China's opening up to crypto was a matter of "when" and not "if".

Last week, HKUST's Wang also floated the idea of tokenisation as an answer for China amid increasing decoupling risks. If former US president Donald Trump retakes office, China could be removed from the Swift financial messaging system or at least face restrictions, Wang said.

"If that's the case, the market could open up," Wang said. "I think there will be a breakthrough within three years, when people reconsider what digital assets are, and whether it's harmful."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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