When embracing a new jurisdiction such as China as an investor, it is without a doubt important to wrap your head around a wide range of new let’s call it jargon: administrative regions, industry-specific particularities, you name it. However, while it is without a doubt important to understand the words that are being used, it’s at the very least equally important to also understand what they actually mean.
In many jurisdictions but perhaps more so in China, this involves looking beneath the surface.
To put it differently, not assuming that just because a political figure explained that something is black, you need to take that at face value and tweak your strategy as if you know for a fact that the “something” in question is indeed black. The same way, it would also be a mistake to adopt a conspiracy-oriented manner of seeing things and de facto assume that if a politician calls something black, he is trying to mislead you and therefore it “has” to be white.
Allow us to introduce the bitter-sweet but pretty much always relevant Chinese grey area.
In the absence of solid identification and navigation skills with respect to precisely this grey area, many businesses/industries would have been long gone. To provide one of the most obvious to the point of infamous examples, let us refer to the relationship between China on the one hand and bitcoin as well as other cryptocurrencies on the other.
For many years, Chinese interests have dominated the cryptocurrency world for two broad reasons:
- A lot of Chinese capital was ready to be deployed toward investment vehicles such as cryptocurrencies. In some cases due to the desire to make money, in other situations so as to move funds abroad, the motivation varies but the indisputable fact remains that in the absence of Chinese capital, it would have been multiple orders of magnitude more difficult for cryptocurrency prices to be where they are now
- China-specific advantages which make it a premier destination for cryptocurrency mining. On the one hand, this is a result of the fact that Chinese miners are able to negotiate satisfactory energy deals and on the other hand, because labor costs as well as a wide range of other aspects are more attractive in this jurisdiction
The perfect love story, one might ask?
Not quite, a better way to describe it would be the perfect love-hate story.
This is because as legislators, the Chinese authorities have displayed a let’s call it ambivalence toward the cryptocurrency space: sometimes accommodating (with officials and even mainstream propaganda channels displaying content favorable toward especially blockchain technology in general), sometimes tolerating (making it clear that certain aspects pertaining to cryptocurrencies are tolerated at best) and sometimes downright vindictive.
One day, the benefits of blockchain technology seem to be ubiquitously praised in Chinese public/official discourse.
The next day, however, we witnessed a just as public display of concerns surrounding the various risks associated with the cryptocurrency industry: ICOs, exchanges and so on.
The following day, a more dovish tone may very well have been adopted, only to eventually switch right back to being hawkish.
Now, of course, these things weren’t exactly days apart, we do reserve the right to exhibit a little bit of artistic freedom. But the fact remains that China’s attitude toward cryptocurrencies can be considered volatile to say the least.
From exchanges which were not really embraced but at least tolerated, to them being banned, a situation which generated a mass exodus to other jurisdictions. From mining being tolerated to it being included on China’s “to eventually ban” list, only to eventually be removed from said list. From praising blockchain technology to criticizing most or even all existing cryptocurrency projects… some call this ambivalence, others prefer using “double standards” and other such terms.
Fortunately for many Chinese cryptocurrency enthusiasts, this complicated love-hate relationship didn’t generate a generalized exodus. Instead, various players ended up adapting to the realities pertaining to their industries. From individual investors who embraced let’s call it stated crypto acquisition to exchanges which juggled between jurisdictions and miners who found ways to remain afloat, the world of crypto is perhaps the textbook example of the fact that even when we are describing “poster boys” of legislative hardship such as cryptocurrencies, there are ways to not only survive but thrive.
The same principle applies to pretty much any industry.
Investors who expect China to be a glowing example of legislative transparency and predictability will end up being bitterly disappointed. In some cases for political considerations, in other situations due to lack of experience or a wide range of other reasons, the manner in which things are done as well as communicated in China at the official level can oftentimes seem discouraging.
At the end of the day, one cannot expect “Wild West” returns with a “tame” jurisdiction and China does not represent an exception. The good news is that reading between the lines is a skill that can be acquired, the bad news is that it will not be easy. An attractive “middle road” solution for investors who want to make meaningfully informed decisions but are not able to allocate the time it takes to acquire various skills themselves is represented by… as self-serving as it may seem and most likely is, working with consultants such as us. We’ve been around the proverbial block for over 13 years and are more than willing to let clients tap into our expertise in a win-win manner. Click HERE to find out what we can do for you or, of course, HERE if you already have at least a broad idea in mind and would like to communicate with us directly.