In the News: Business Environment Improvement; China Tops World for Unicorns; and Cryptography Law Passed

China's ease of doing business ranking climbed to 31 this year from 46 last year according to a recent World Bank report. It noted that between 2016 and 2018, China enacted just six reforms that meet the report's criteria whereas it has already implemented seven in 2019 so far. However, problems still remain, as demonstrated by a paper released by the European Chamber of Commerce in China in September which complained of "blatant discrimination" against foreign companies in public procurement. A hostile business environment for foreign companies is one of the United States' complaints against China in the ongoing trade war, which is clearly playing a role in bringing about business reforms in China. China is expecting the U.S. to reciprocate by improving its treatment of Chinese businesses there, the deputy chairman of China's National Development and Reform Commission said regarding the latest regulations, adding that improvement to the business environment should be mutual.

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China tops world in number of "unicorns"

China leads in the world in the number of "unicorns" – start-ups valued at more than $1 billion – according to a recent report. The inaugural Hurun Global Unicorn List compiled by Shanghai-based publishing group Hurun Report found that China is home to 206 of the 494 technology unicorns founded in the 2000s that have yet to go public as of June 30, with the U.S. close behind in second place with 203. Together, the two countries dominate with over 80% of the world's unicorns.

China's Ant Financial Services, which operates Alipay; ByteDance, which owns the popular video app TikTok; and ride-hailing giant Didi Chuxing topped the rankings with a combined valuation of $280 billion. Beijing was ranked as the world's unicorn capital with 82 such firms, ahead of San Francisco which has 55. However, the U.S.-based research firm CB Insights finds that the U.S. has more than double the number of China's unicorns with more than 200, although it uses a different methodology to Hurun Report.

Although China ranks as one of the top countries in the world for developing unicorns, there are signs that this is becoming more difficult not least because of a deepening economic slowdown and the drying up of venture capital fundraising. Hurun Report's data shows that only 36 new unicorns were established in the first half of 2019, a 30% fall from the same period in 2018. According to data from U.K.-based investment research firm Preqin, the number of venture capital deals in China almost halved in Q3 to 702 – the lowest figure for a quarter since 2014.  

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China passes cryptography law

China has passed a new cryptography law (中华人民共和国密码法) to come into effect on January 1, 2020. The Standing Committee of the National People's Congress, China's parliament, passed the law on cryptography in preparation for the country launching its own digital currency, Chinese state media reported. The parliament said the new law will help build up standardized regulatory system for the market.

The law outlines the state's support for the application of science and technology in cryptography with emphasis on confidentiality and security. It also requires that all state secrets be stored and transmitted using "core and common" encryption, and that institutions working on cryptography must establish "management systems" that ensure the security of their encryption. The proposal for the new law released in July stated that clear guidelines and regulations are needed to regulate commercial cryptography technologies and that the current 'loose' oversight regime is not adequate.

Cryptography underpins blockchain technology which is integral to cryptocurrencies such as Bitcoin. In 2014, China's central bank set up a research group to explore launching its own digital currency. In September, an official from the bank said that China's proposed digital currency would bear some similarities to Facebook's Libra cryptocurrency and would be able to be used on major e-payment platforms such as WeChat and Alipay. No timetable has been announced yet regarding the release of China's digital currency. The announcement of the new law came one day after Chinese President Xi Jinping called on the country to accelerate developments in blockchain technology. Earlier this month, leading Chinese governmental organizations and enterprises launched a nationwide blockchain services network to boost blockchain developments.

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