A draft proposal from China’s economic planning commission labels bitcoin mining as an industry that needs to be “eliminated.” But even if finalized in its current form, this would not automatically amount to an outright mining ban.
While local governments are supposed to follow the commission’s guidance, to take action against an industry they need a basis in the laws of the state, not industrial policy.
Seizing on this, miners are arguing that eliminating their industry would also conflict with local interests, in part because they soak up excess electricity that would otherwise go to waste.
The purpose of the catalog is to serve as a macro-level economic policy to guide local governments on how to allocate their investment and resources to balance local economic growth with overall stability.
According to a translation by LexisNexis (full document included at the end of this article), Article 19 of the Interim Provisions clarifies what local governments shall do with industries that are categorized as to be eliminated. All financial institutions shall stop various forms of credit granting supports to such projects, and take measures to recover the granted loans,” the Article reads, adding:
“If any enterprise of the eliminated category refuses to eliminate the production technique, equipment or products, the local people’s government at each level and the relevant administrative department shall, in accordance with the relevant laws and regulations of the state, order it to stop production or close it.”
Therefore, indeed, local governments are required to take proper actions to implement what’s outlined in the NDRC’s policy guide.
But there’s a notable catch: the part about “the relevant laws and regulations of the state.”
Kai Xu, a legal practitioner in China with expertise in corporate governance and compliance, explained to CoinDesk that local governments must use related laws and regulations – not the Interim Provisions itself – as a legal basis to take forceful actions to shut down “undesirable” companies. “It’s currently unclear [how or what types of laws bitcoin mining should fall under].”
He added that the legal nature of the NDRC’s policy is different from that of the ICO ban announced by the central bank in 2017 (which clearly defined the nature of ICOs as an illegal activity, meaning any entity that still engages in that activity is subject to legal actions).
Also importantly, the State Council emphasized at the top of the 2005 Interim Provisions that local governments, when implementing the industrial policy, are also required to balance the government guidance and the functions of the market as well as local interests.
“The relevant governments and departments shall, when implementing the ‘Interim Provisions’, correctly deal with the relationship between government guidance and market regulation, give full play to the fundamental role of the market in allocating resources, correctly deal with the relationship between development and stability, that between partial interests and overall interests, and that between immediate interests and long-term interests, so as to keep the stable and fast development of the economy.”
Xu told CoinDesk that if the final form of the policy guide includes bitcoin mining as a category to be eliminated, it will be the job of local governments and relevant departments to implement actual executional plans. And there may also be information costs during implementation, as well as conflicts with local interest.”
And members of the local mining community have also raised questions about whether it’s reasonable to label bitcoin mining as an industry to be eliminated, arguing that such a decision could potentially conflict with local interest.
Alex Ao, founder of Innosilicon, which manufactures cryptocurrency mining equipment, said in China’s Inner Mongolia, Xinjiang and southwestern provinces like Sichuan and Yunnan, there is excessive electricity generated every year that can neither be fully consumed by local demand nor be integrated to the State Grid to be transmitted to regions outside.
But a total excess of 16.3 billion kWh went to waste due to not enough local consumption, which resulted in a direct economic loss of some 4 billion yuan, or $600 million, for local hydropower companies. It actually helps consume excessive electricity [generated by local plants] that would otherwise go to waste. “Eliminating that could conflict with local interest because it can benefit the local economy.”
The public now has until May 7 to submit feedback on the NDRC draft proposal. While it’s unclear when the final version will be published, the draft comes at a time when Chinese bitcoin miners have been investing to scale up their mining capacity to capture on the cheap electricity during the summer.
While it is difficult to grasp a full picture of the actual implementation over the years, one article from the People’s Daily in 2006 described certain issues local governments in Hebei encountered when eliminating energy-intensive sectors such as cement manufacturing, following the 2005 policy guide.
Yet the main questions that are now in the air is whether the final form of the policy will still include bitcoin mining in the “undesirable” category, and if so, how lawmakers and local governments will carry out the implementation – especially when it conflicts with potential local interest.