Zhu Guangyao: The US encryption policy has undergone major changes. How should China respond?

Written by: Jinse Finance

On September 28, 2024, Zhu Guangyao, former vice minister of the Ministry of Finance of China, said at the 2024 Tsinghua PBC Chief Economist Forum that the digital economy has a special asset "cryptocurrency". In the past decade, the United States generally believes that cryptocurrencies have huge destructive power and market risks. However, the US encryption policy has undergone major changes since 2024, and China needs to study the latest changes and policy adjustments in the international community. Zhu Guangyao bluntly said that "the current gap between China and the United States in cryptocurrency is that China does not participate", and called for facing the problems and solving them in regulation.

On September 29, 2024, Jinse Finance first reported it and caused a huge response. Jinse Finance sorted out the content of Zhu Guangyao's speech on cryptocurrency based on his speech video.

The following is the transcript of Zhu Guangyao's speech on cryptocurrency (subheadings are added by the editor):

The general trend of the digital economy is the fourth industrial revolution, and China is in the first echelon

The current development of the digital economy should be said to be leading the overall trend and direction of global development.

Since this year, we have seen breakthroughs in AI technology. I think we have entered the fourth industrial revolution, or the fourth industrial revolution has begun. Compared with the past three industrial revolutions, China is indeed different this time. We are in the first team and the first echelon, or the United States and China are now leading the development of the digital economy. Of course, we must acknowledge the gap between China and the United States, that is, from 0 to 1, the United States is indeed still playing a leading role. However, China has the largest application scenario of the digital economy, and we have indeed accumulated a relatively strong accumulation in some innovative fields, in the cultivation of talents, and in technical experts.

Recently, former European Central Bank President Draghi presided over the EU's research report on digital economy and productivity competition. He clearly stated that there is a gap between the EU and the United States and China. Therefore, Europe must increase huge investments to catch up.

The overall development trend of the digital economy should be said to be the fourth industrial revolution, which will mature in the next decade.

A key area of ​​the digital economy is submarine optical cables

The infrastructure of the digital economy. At the front end, it is the mobile phone that each of us uses, which is our platform. At the back end, the key infrastructure is the data center, which is the optical cable that ensures the operation of the network. Intercontinental optical cables are crucial. In the context of globalization, more than 99% of intercontinental data now operates through submarine optical cables. Among the 20 largest supercomputing centers in the world, China has 3, the United States has 17, Europe has none, and Japan has none. The United States is leading in this regard.

So, we are now in the first echelon. It is true that under the new development concept and the innovative theory of "innovation, coordination, green, openness, and sharing", we have made great achievements since the 18th National Congress of the Communist Party of China.

But we are facing challenges now. In 2020, the United States passed the Clean Network Plan under the auspices of the Trump administration, and it is still being implemented. One ​​key area is submarine optical cables. Chinese companies have huge engineering and construction capabilities, but the US government is now trying every means to force US companies not to cooperate with China.

The United Nations has clear data that 49% of global data is exchanged in the United States, 24% in Europe, and 22% in East Asia, of which China is 9%. However, if the intercontinental network is blocked, that is, the United States and China are decoupled, then the loss to the United States will be reduced by 12%, that is, 49% will be reduced to 37%, and China will be reduced from 9% to 7%, which is a huge loss for both sides.

In the next ten years, the fourth industrial revolution will be driven by artificial intelligence. Affected by this decoupling, two parallel markets, two parallel supply chains, the International Monetary Fund estimates that the global economy will lose 7%-12% of the total 105 trillion US dollars, that is, 7 trillion to 12 trillion US dollars. Therefore, no country can bear such a huge economic loss alone, and its danger is extremely great. Therefore, we must return to this process of globalization, and major economies must communicate closely on important economic policies.

Cryptocurrency: Major changes in US policies

On the other hand, there is a special asset in the digital economy now - cryptocurrency.

In the past decade, the United States has unanimously agreed that cryptocurrency: 1. It has a huge destructive power on international anti-money laundering and international anti-terrorist financing. 2. It has huge market risks, because the sharp fluctuations in its value have a huge impact on the international financial market.

However, this year, the US policy has undergone a major evolution.

1. The Republican Party. The Republican Party platform clearly lists the development of cryptocurrency as its campaign platform. At the same time, it also clearly states that China should be excluded. Trump also publicly said during the campaign that the United States must embrace cryptocurrencies and deny that China will replace the United States. His vice presidential candidate Vance is a venture capitalist himself and holds a large amount of cryptocurrency assets.

Second, the executive branch. Trump said that on the first day of his inauguration, he would fire the current SEC chairman of the United States, who is now restricting the development of digital currencies. But now the SEC chairman approved 11 Bitcoin ETFs to be listed on the New York Stock Exchange, Nasdaq, and Chicago Mercantile Exchange in January this year. This marks that the US government recognizes the legitimacy of Bitcoin. In July, the Ethereum ETF was approved for listing.

Therefore, even if the current SEC in the United States, which was accused by Trump of implementing various policy restrictions on the development of Bitcoin, and the attitude of the entire Biden administration, have actually undergone a fundamental change.

In terms of emerging market BRICS countries. In September 2024, Russian President Putin officially approved cryptocurrency. In fact, South Africa, Brazil, and India have already been doing it before.

So, now when it comes to the development of digital currency, cryptocurrency does have negative effects, and we must fully recognize its risks and harm to the capital market. However, we must study the latest changes and policy adjustments in the world, especially the impact of the policies of the Republican and Republican parties in the United States, because it is a crucial aspect for the development of the entire digital economy.

How China responds

Host: Thank you, Minister Zhu. Let us recall that before 2015, it was called mining, and China's digital currency technology was leading the world. Now nine years have passed, how far do you think we are behind?

Zhu Guangyao: Mining is actually closely related to the development of chips.

What were we worried about? One is what I just said, anti-terrorist financing and anti-money laundering are severely impacted by cryptocurrencies, especially the violent fluctuations in the capital market. This is what the Americans and we have said many times at the G20.

Does cryptocurrency have these harms? Yes. But how to solve the problem in terms of supervision? It should be solvable. Our current gap is that even if you do not participate, there will still be transactions through underground channels. But you do not have the ability to use production because you are prohibited by law.

So, we have to study new problems. According to a communiqué of the Central Political Bureau meeting,we must face the problem, discuss it, and solve it.