Asia & Australia,  Opinion,  Technology

30 Years Later, Tiananmen Square a reminder of Chinese threat to innovation

China may be able to add another arrow to its quiver of intellectual theft: cryptocurrencies

Democracy has its advantages and its challenges that must be met. On the one hand, an open society allows for anyone to innovate, but an intentionally inefficient government can’t move as quickly as, say, an authoritarian one. China’s Xi Jinping enjoys power that the likes of which Donald Trump couldn’t (and if we’re honest, wouldn’t) dream. 

Our protest-happy culture is a glaring example of this. As the president visited Queen Elizabeth this week, plenty of Londoners were out to protest, but under the local government’s accommodation. Compare this to, say, a protest in China exactly 30 years ago, where pro-democracy protests were met with a tanks in Tiananmen Square Massacre. Troops killed hundreds, or even thousands, of demonstrators as an authoritarian regime refused to let the post-Soviet wave of freedom wash into Beijing.

Tiananmen Square became a watershed moment for China and its international standing. The intervening decades have seen the Chinese Tiger become a pivotal world-power, but one that still rejects freedom—no matter how many airs it may put on as an open, business-friendly destination for international investment.

The Washington Post summarized modern China as “supremely confident, richer than it could have imagined three decades ago, and more convinced than ever of the rightness of its repressive model of authoritarian political control.”  Human Rights Watch reported that the Chinese government spies on its entire population through a mobile app. Authorities are collecting massive amounts of personal data and investigating people flagged as “problematic.”

That level of control extends to Chinese business interests. One has to look no further than the current imbroglio around Chinese telecom firm Huawei. The company, founded by a former People’s Liberation Army officer in 1987, grew into a multinational success story thanks in no small part to long-running government support and close ties with the Communist Party. Huawei seeks to play a pivotal role in the development of next-generation telecom infrastructure—given the serious security implications such power would play, U.S. government officials are correct to view those aims with a critical eye.

Clearly, Chinese authorities are willing and able to subvert technological developments to their own repressive ends, and have shown a constant willingness to steal innovations their closed society could never invent.  If the United States does not act now, China may be able to add another arrow to its quiver of intellectual theft: cryptocurrencies.

The most promising aspects of digital assets—transactional speed and freedom, financial inclusion, and most of all anonymity—are antithetical to Chinese Communist values. And yet, in many respects, China has taken the lead on investing in this burgeoning technology. President Xi Jinping included blockchain as a goal for the country to lead in innovation, blockchain development ranks among the Chinese State Council’s 13th Five-Year Plan goals, and China has filed the most patents related to blockchain in the world, according to Knowledge@Wharton. Additionally, BabelBank, among the largest commercial crypto banks in China, has reported a substantial increase in speculative borrowing for crypto investment.

These advances are a stark reminder of a deficiency in the U.S.: even today, there is no federal regulatory framework for cryptocurrencies. Our authorities—the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS)—have not clearly stated how these digital assets fit into the broader financial system. Instead, patchwork decisions from these regulators regarding individual companies have created uncertainty for companies operating in this space.  Indeed, in the vacuum of a sensible U.S. crypto regulatory framework, these agencies have been struggling for turf while relying on arcane laws written back in the days of telegraphs.

Washington’s neglect has made crypto innovation a costly effort in this country, a situation made easier for our greatest rival to exploit.

In order to assure that technological advances—especially ones like cryptocurrencies—are not subsumed by Chinese interests, the U.S. must take the lead on their development and implementation. We can do that only by establishing forward-looking, pragmatic, and clear federal regulatory oversight of the industry.

We’re not going to see an acknowledgement of the Tiananmen Square anniversary from Chinese officials this week; indeed, anyone who tries to do so faces arrest. We’re also not likely to see an acknowledgement of the 1 million to 2 million Uighur Muslims currently detained in the Chinese region of Xinjiang in so-called “re-education centers”, or the role that Chinese technology “partners” like ZTE have played in the brutal repression being carried out by the Venezuelan regime against its people.  Given China’s track record of systematic human rights and free speech abuses, we should assume they will not change by choice or by force.

We can, however, ensure that technologies like crypto are not subverted to those aims—by establishing the U.S. as the leader in crypto that it should be.

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