WeChat Blocks NFT Marketplace Promoting Accounts

Key Insights:

  • WeChat blocks ten public accounts linked to NFT marketplaces.
  • Government and regulatory interest in NFTs have surged due to a marked increase in illicit activity.
  • Failure to rein in illicit activity could see China take harsher measures.

It’s been a busy first quarter for digital assets and NFT marketplaces. Governments and regulators across key digital asset jurisdictions have taken steps to curb investor enthusiasm.

Despite the marked increase in regulatory scrutiny, activity within the NFT space has surged. As the year progresses, more mainstream players are planning NFT launches. With increased activity comes increased illicit activity and even greater regulatory scrutiny.

While China has prohibited Bitcoin (BTC) trading and mining, NFTs are permissible under current regulations.

WeChat Targets Accounts Promoting NFT Marketplaces

This week, news hit the wires of WeChat blocking accounts promoting NFT marketplaces. Owned by Tencent, WeChat has blocked ten in total. These include Art Meta Yuanyishu Yidianshuzang, One Meta, Earth Zero, Guizang Metaverse, Huasheng Meta, Yuanben Space, Shenda Shuzang, iBox, and Nuofangti.

According to reports, WeChat banned the accounts to eliminate the risk of speculative digital asset trading. WeChat also prohibits second-hand trading on the WeChat platform.

The public accounts in question must now present a certificate of cooperation with a blockchain company, registered and approved by the Cyberspace Administration of China (CAC).

Headquartered in Beijing, CAC is China’s central internet regulator, censor, oversight, and control agency.

China Takes a Tough Stance on Digital Assets and the Metaverse

Despite increased regulatory scrutiny, NFT and Metaverse activity is rising in China.

In February, FX Empire reported Metaverse-related trademark applications hitting 16,000. The surge in trademark applications came despite strong warnings from the Chinese government.

This year, we reported the Chinese government taking a greater interest in NFTs and the Metaverse. A rise in illicit activity led to discussions at China’s Two Sessions.

The People’s Bank of China (PBoC) is looking to clamp down on NFTs and the Metaverse using AML tools. In December, the PBoC’s AML unit talked of virtual assets being the pathway for illegal activities facilitated by the isolated nature of NFTs and Metaverse-based items.

The risk for NFT and Metaverse-related firms is a continued rise in illicit activity, leading to an outright ban on NFTs.

China is not alone in its stand against NFT and Metaverse-related activity.

This year, the Monetary Authority of Singapore banned the advertising of digital assets, with UK Members of Parliament also voicing concern over cryptos and NFTs.

Amidst increased regulatory scrutiny, more social media platforms could follow WeChat and even totally ban digital asset-related accounts. Much will likely depend on whether regulators can curb illicit activity, which plagues the crypto market, NFTs, and the Metaverse.

Crypto Bank Sygnum Gets Nod from Singapore Regulator

Key Insights:

  • Swiss crypto bank Sygnum Bank gets in-principal approval to expand digital asset product offering in Singapore.
  • Singapore continues to evolve as Asia’s digital asset hub, with Temasek leading the way.
  • A clear regulatory framework has been pivotal in Singapore’s evolution as a center of innovation.

Swiss crypto bank Sygnum Bank is the world’s first digital assets bank. The bank enables clients to invest in the digital asset economy safely and securely. Founded in 2017, Sygnum established itself in Switzerland and Singapore with a Swiss banking license and a Singapore asset management license.

Sygnum Bank Solutions Aligned with Web3

Through the Swiss banking license and Singapore CMS license, Sygnum offers several services.

Services on offer include:

  • Accounts, custody & staking: Clients can store digital assets with ‘institutional-grade trust.’
  • Asset management: Offers diversified digital asset investment products.
  • B2B banking service: Provides a full suite of services, including accounts, payments & custody, brokerage, tokenization, lending, and asset management in a one-stop-shop offering.
  • Brokerage: Supports 24/7 trading of digital assets securely and seamlessly.
  • Lending: Lombard loans increase fiat liquidity against digital assets, including BTC and ETH.
  • Tokenization: This allows issuers to raise capital through tokenized securities issuances. The offering gives Sygnum Bank clients access to an increased range of investible assets.

Sygnum Gets Nod to Expand Digital Asset Services

Having held a Singapore Capital Markets Services (CMS) license for asset management since 2019, Sygnum Bank announced today in-principal Monetary Authority of Singapore (MAS) approval for three additional regulated activities under its CMS license.

The three additional activities include:

  • Corporate finance advisory services.
  • Dealing in capital market products.
  • Provide custodial services.

Sygnum Bank will initially focus on fund unit tokenization and its newly launched SBI-Sygnum-Azimut Digital Asset Opportunity Fund.

Looking ahead, Sygnum plans to:

  • Provide corporate finance advisory services to Web3 platforms and digital creators.
  • Securitize rare digital collectibles, NFTs, and Metaverse assets, including virtual LAND and in-game items.

Sygnum Approval a Boost for Singapore Hub Aspirations

Singapore and the MAS have been particularly active in the digital asset space. Despite mixed regulatory signals, the Republic’s status as a global digital asset hub continues to evolve.

In 2021, Binance withdrew its Singapore application for reportedly failing to meet KYC and AML requirements. Since then, the MAS has also banned crypto exchange advertising in public.

Despite the stringent rules, the crypto market eyes Singapore as Asia’s crypto-asset hub. Regulatory uncertainty has plagued some major digital asset jurisdictions and crypto players.

By contrast, the Singapore government has provided a regulatory framework that embraces digital assets with the appropriate level of oversight.

This week, Singapore government investment vehicle Temasek hit the crypto news wires. Temasek reportedly led a fresh fundraising round for the Australian NFT startup Immutable. A $200m funding round took the value of Immutable to $2.5bn, with investors including Tencent Holdings, Mirae Asset, and Declaration Partners, among others.

In February, Temasek had led a $200m round for Amber Group, a global digital assets platform.

The Temasek involvement in leading fundraising campaigns is likely a strategic one as Singapore looks to further cement itself as a global digital asset hub.

Chinese Government Eyes NFTs and the Metaverse for Illicit Activity

Key Insights:

  • Supreme People’s Procuratorate (SPP) has reportedly talked of severe retribution to those taking part in illegal activity.
  • China’s Two Sessions highlighted growing concerns over the Metaverse.
  • A surge in Metaverse-related trademark applications forces increased scrutiny.

Illicit activity has risen across NFT marketplaces and in the Metaverse. Increased interest in NFTs and the Metaverse has drawn cybercriminals from the crypto market to The Sandbox (SAND), Decentraland (MANA), and the NFT space.

Sliding crypto prices and an upward trend in NFT sales volumes and land prices in the Metaverse have contributed to the shift in criminal activity.

The rise in illicit activity has caught the attention of regulators and governments. Since Russia invaded Ukraine, scrutiny has increased as governments aim to prevent Russia from circumventing sanctions.

China Targets NFTs and the Metaverse to Hit Illegal Fundraising

This week, China issued a stern warning to cybercriminals targeting NFTs and the Metaverse. The Supreme People’s Procuratorate (SPP) has reportedly talked of severe retribution for those undertaking illicit activity, including money laundering and fundraising.

On Tuesday, news updates from China’s Two Sessions highlighted growing concerns over the Metaverse. Chinese People’s Political Consultative Conference (CPPCC) member Zhang Ying reportedly talked of the need for appropriate regulations.

Regulations would be needed to address data security, information protection, and speculation. CPPCC member Zhang also talked of a concerning level of speculation in the current form of the Metaverse.

While cryptos are illegal, the Chinese government has stopped short of banning NFTs and the Metaverse. Despite holding back from a ban, the government and state media continue highlighting Metaverse-related risks.

The focus on the Metaverse comes after a surge in interest from Chinese multinationals.

China Metaverse-Related Trademark Applications Defy Government Warnings

Warnings from the Chinese government are nothing new vis-a-vis the Metaverse. Last month, the Chinese Banking and Insurance Regulatory Commission issued a warning to the public on the risks associated with the Metaverse.

Last year, the People’s Bank of China (PBoC) also actively issued warnings about the Metaverse. In December, we reported the PBoC clamping down on NFTs and the Metaverse using AML tools.

Despite the clampdown, Chinese companies have continued to file Metaverse-related trademark applications.

Last week, Chinese tech giant Tencent filed a patent for virtual concerts. Other big names have also been active, with Metaverse-related trademark applications, in China, reportedly reaching 16,000 by late February.

In December, we talked of the likely increased government scrutiny resulting from the surge in applications. With the numbers only rising, the government may take more evasive action to address illicit activity.

Tencent Defies Regulator Warning with Metaverse Patent Application

Key Insights:

  • Tencent goes deeper into the Metaverse with new patent applications for virtual concerts.
  • In 2020, Tencent bought a stake in U.S virtual concert platform Wave in a bid to dominate the virtual concert stage.
  • Chinese regulatory scrutiny could leave the Chinese music industry in the wake of Metaverse-friendly nations.

Over the last few months, the Chinese government and the People’s Bank of China (PBoC) have been critical of NFTs and the Metaverse. The shift in focus follows last summer’s ban on Bitcoin (BTC) mining.

A marked increase in NFT activity and interest in the Metaverse has forced Chinese conglomerates to make a move despite condemnation from the government and the PBoC.

China Giant Tencent Files Metaverse Patent Application

This week, Chinese tech giant Tencent reportedly filed a patent for virtual concerts. The virtual concerts patent application follows China’s first virtual concert on 31st December. Tencent held the “TMELAND” concert in the Metaverse to ring in the New Year. A reported 1.1m fans saw the New Year concert.

 

Immensely successful, Tencent continues to ignore the warnings of the Chinese government and the PBoC. Looking to diversify away from China, Tencent Music acquired a stake in Wave in late 2020. Wave is an LA-based virtual concert platform.

Past Waves include Justin Bieber, Pentakill, Dillon Francis, The Weeknd, and John Legend.

Patent Applications Come Despite Government Warnings

NFT and Metaverse-related trademark and patent applications have continued to surge in China. The surge comes despite a jump in illicit activity and government warnings.

In December, we reported that the PBoC clamped down on NFTs and the Metaverse using AML tools. The PBoC’s AML unit sees virtual assets as a pathway for illegal activities facilitated by the isolated nature of NFTs and metaverse-based items.

Just over 100 companies had registered for trademarks related to the Metaverse before a late 2021 surge. In addition, more than 1,300 Chinese companies reportedly filed for trademarks by late December. Other major Chinese companies filing for trademarks included Huawei Technologies, NetEase, and Hisense.

Since December, firms have not let up. By mid-February, a reported 16,000 trademark metaverse-related applications were pending approval in China. This was up from just under 9,000 in mid-December.

Whether China’s regulator approves all 16,000 remains to be seen. With competition rife, however, China could fall behind should the likes of Tencent receive a cold shoulder at home.

Winter Olympics Merchants to Accept Digital Yuan, Says Chinese Banks

With the Winter Olympics approaching, the Chinese government is gearing up for the festivities.

The Olympics are also set to mark a crucial test of time for the Chinese central bank, the People’s Bank of China (PBoC), as the sporting event would also mark the assessment of its digital yuan. While the token still officially remains in its pilot phase, it will be showcased to the world next week during the Winter Olympics.

Testing Times for the Digital Yuan

Just last week the PBoC claimed that by the end of 2021, the digital yuan had over 261 million users in the nation, using the currency through their activated digital yuan wallets.

Additionally, there are over 20 million people who have downloaded its official pilot app, which was released to marketplaces in some cities in early January this year. 

Apart from PBoC’s app, around 9 commercial banks, some state-owned and other private financial entities owned by firms such as Tencent’s WeChat Pay and e-commerce giant Alibaba, are currently offering digital yuan wallets. However, access to these digital yuan wallets is limited to only the people located in the pilot zones. 

It has been established that Winter Olympics visitors would be able to download a smartphone app or make use of ‘a physical card’ – likely a version of a ‘hardware wallet’ card tested in the country at an earlier stage of the digital yuan’s pilot.

Furthermore, a number of ‘convenience stores, cafes, and other merchants inside the Olympic Village’ in Beijing have been equipped with point of sale machines that accept digital yuan payment.

In addition to that, stores and other merchants in the parts of Beijing and Hebei Province that will host events will also be allowed to take e-CNY payments.

Recent reports from local news agencies presented that the PBoC and its partners say they are ready to stand well on their promises. The PBoC has been working closely with the Bank of China since the pilot began in earnest. A statement from the Bank said: 

“We are making every effort to prepare for the Winter Olympics under the guidance of the PBoC. During the Winter Olympics, the Bank of China will provide a full range of services such as [software-based] wallets, hard wallets, exchanges, top-ups, and [cash] redemption at the Bank of China branch in the Olympic Village.”

Digital Yuan’s Destiny to Be Decided

While there is no doubt the digital yuan or e-CNY is one of the most experienced CBDCs, a project that began in 2014, according to The Wall Street Journal, some roadblocks still persist.

Most importantly, for now, warnings around air pollution, government snooping, and the environmental impact of Games which rely mostly on man-made snow add to the mix of controversies.

That said, rising Covid-19 cases near areas around Beijing and reports about the government imposing a secret lockdown have further added to the negative commentary around the Winter Olympics.

For now, however, statistics pertaining to the digital yuan are still glimmering, in November 2021 for instance, approximately 140 million people in China had digital wallets and almost 62 billion yuans were transacted, equal to ($9.5 billion).

Further, by the end of 2021, local news agencies had reported that more than 300,000 merchants in Shenzhen were using e-CNY, one of the most technological cities in China. Nonetheless, the fate of the digital yuan could take any turn post the Winter Olympics. 

Better to Get Chinese Stock Exposure Through the iShares MSCI Emerging Markets ETF Instead of MCHI

At $62.9 per share, iShares MSCI China ETF (MCHI) is more than 70% under its February 2021 high. In contrast, the one-month gain of 3.4% shows that there has been a regain of interest by investors for this ETF which mainly provides exposure to the Chinese consumer cyclical, communication, financial, and tech sectors. In comparison, the iShares MSCI Emerging Markets ETF (EEM) which includes about 34% of Chinese assets is up by 3.8%.

Source: Trading View

My objective with this thesis is to understand the reason for this timid rise in the value of MCHI and whether there could be a more sustained upside. I first start with China’s central bank actions which could be beneficial to the ETF’s financial sector holdings.

China’s central bank actions

The People’s Bank of China (PBOC) which had previously taken a restrained approach to monetary stimulus, appeared to change its stance on December 25, when it pledged greater support for the real economy, stating that monetary policy will be more forward-looking and targeted. One of the intended aims would be to “promote the property sector’s healthy growth as well as work to better meet housing demand”. By that time, MCHI shares had reached their lowest point, and the PBOC’s statement did produce a temporary relief for investors.

Interestingly, the central bank’s more recent announcement about lowering interest rates by 10 basis points to 2.85% on Jan 17 constitutes a more concrete step and may preclude other such actions as Chinese authorities try to mitigate the effects of the Omicron variant, and address the downturn in the property sector.

Now, the fact that the PBOC is easing monetary policy despite China’s GDP expanding by 8.1% in 2021, supposes that the economy still faces headwinds. At the same time, the U.S. and the rest of the world are looking more towards tightening. Thus, the PBOC may have a narrow window of opportunity to provide stimulus before it has to start tightening again. Hence, while there are near-term positives for MCHI’s bank and industrial holdings, the longer-term picture looks more uncertain.

Some big investors favor China for investment

Now, REITs constitute just 4% of MCHI’s holdings and the ETF provides exposure to giants like Alibaba (BABA), also referred to as the “Chinese Amazon (AMZN)”. Interestingly, Charlie Munger, the vice-chairman of Berkshire Hathaway (BRK.B) controlled by Warren Buffett has augmented his stake in Alibaba during the recent months. Now, Berkshire is considered as the “epitome of value”, and for this matter, MCHI’s uptrend also somewhat coincides with the rotation from growth to value stocks which has been gaining momentum from the beginning of this year.

Source: iShares.com

Along the same lines, billionaire investor Ray Dalio, who has reportedly raised $1.3 billion for its third China fund according to the Wall Street Journal is highly optimistic that the Asian country is winning the economic race against the U.S.

Now, Dalio’s remarks have sparked some controversy. To this end, those who have invested in Chinese tech and educational technology companies know something about the propensity of authorities in that country to bring in abrupt regulations, such as those implemented as from July last year. These quickly decimated the valuations of stocks operating in these sectors.

Exploring further, Dalio’s remarks are reminiscent of the 2005-2006 period when the U.S. had dropped from 4th to 13th position in the global rankings for broadband internet usage, all at the benefit of Japan and South Korea. At that time some Wall Street gurus predicted that this drop would result in the U.S. losing in productivity and innovation. Eventually, these predictions never materialized and twenty years later, the U.S is home to the biggest tech companies the world has ever known.

Thus, basing an investment solely on the moves of big investors makes no sense and anyone investing in China should be aware of the risks.

The risks

First, the delisting fears whereby NYSE and NASDAQ listed Chinese firms will be all removed and relisted in Hong Kong appear overblown as even if a stock delists from the U.S., possibly as a result of Chinese authorities stepping up supervision, it would eventually be converted to Hong Kong Stock Exchange shares, so one still owns the company. This was the case with ride-hailing group Didi Global (DIDI) at the start of December last year, but news about the event still trimmed some percentage points off MCHI’s share price.

Second, both the US and China are heavily invested in each other as the two countries’ supply chains are highly interdependent. On the one hand, with American citizens depend to a large extent on consumer items from China, and on the other, the latter’s factories depend on capital goods like semiconductor producing equipment from the U.S. Now, semiconductors remain highly sensitive items and the U.S. has brought in legislation which limits the type of chips which can be exported to China, out of fear that the Chinese military may use these to produce sophisticated weapons. These could be used against Taiwan, one of America’s strategic allies in the region.

Better to go for partial exposure through EEM

Therefore, in addition to economic and regulatory uncertainty within China itself, there are geopolitical risks that can impact the country’s trade with the U.S. This can result in MCHI becoming highly volatile. However, China remains the second largest economy in the world and value investors like Charlie Munger and venture capitalists like Ray Dalio have been in the game since a long time. Consequently, from the balanced risk perspective, partial exposure to Chinese stocks, either individually, or through an ETF start to make some sense.

Thus, for those wanting exposure to some of the specific Chinese tech names like Tencent (TCEHY) and Alibaba which are significantly undervalued with respect to their western counterparts, there is the EEM alternative, which is also diversified in Taiwanese, South Korean, Indian stocks as well as other countries. The ETF’s holdings should benefit from record high U.S. inflation favoring cheaper alternative products from emerging economies. This said EEM has a slightly higher expense ratio of 0.68% compared to MCHI’s 0.57% but has shown a better one-month performance.

South Korean Regulators Look Beyond Borders as Regulators Widen the Net

It’s just the beginning of the year and regulators are looking to build on the momentum from late 2021. In December, the Bank of England had talked of the need for a global framework to regulate the crypto market.

Since the BoE’s December Financial Stability Report, which highlighted crypto market risks to global financial stability, both regulator chatter and action have been on the rise.

In the New Year, news hit the wires of Indian authorities searching 6 crypto exchanges on the suspicion of tax evasion. One of the exchanges was Binance-owned WazirX.

Crypto Regulatory Activity Builds

Binance has also been in hot water with regulators in recent weeks. Just last week, Binance got on the wrong side of the Ontario Securities Commission. A reported miscommunication came following a Binance decision to withdraw its application for a Singapore license. Reportedly, Binance failed to meet the Monetary Authority of Singapore’s AML and KYC requirements.

Other governments are also clamping down as trading activity rises. Away from trading activity, governments are also looking at NFTs, the Metaverse, and more.

In December, the People’s Republic of China was back in the news, this time in relation to the Metaverse. Momentum has been building, however, with the Chinese firms Huawei Technologies Co, NetEase, Tencent, and Hisense amongst firms applying for metaverse-related trademarks.

It remains to be seen whether approvals are forthcoming. The PBoC’s AML unit reportedly views virtual assets as a pathway to illegal activity, facilitated by the isolated nature of NFTs and metaverse-based items.

When considering the heightened regulatory chatter, it’s a natural progression for other regulators to step forward.

South Korea Breaks Down Crypto Boundaries

Today, news hit the wires of South Korea’s Ministry of Economy and Finance introducing new laws in relation to crypto holdings.

Residents with overseas deposits of more than 500m Korean Won need to notify their jurisdiction tax director of their holdings. This is a capture-all, with residents also needing to disclose crypto assets. At 2023, a 20% virtual assets income tax will reportedly come into effect.

It’s one more hit for the crypto market that has faced harsh measures from China and other governments. The South Korean government’s latest move is not to ban crypto trading but is likely to impose measures to reign in cavalier crypto trading activity.

Interestingly, the news coincided with Samsung’s move into the NFT space.

Market Reaction Muted

At the time of writing, there was little reaction to the news. Bitcoin (BTC) was down by just 0.13% to $47,244.

BTCUSD 030122 Daily Chart

For more seasoned investors, however, 2018 and the global regulatory clampdown may bring into question the bullish sentiment towards 2022.

BKF: A BRIC ETF to Diversify Globally

After experiencing whopping gains of 28% in the SPDR S&P 500 ETF (SPY), it is time to reduce your exposure to a richly valued fund that primarily provides exposure to the U.S high market cap space. Selling partly and at this juncture enables you to sell at high prices and collect cash.

Moreover, in the current low-interest environment where inflation is already eating up your disposable income, it becomes important to invest any excess cash into alternatives that are not correlated to the U.S. broader stock market. For those interested in global equities, they can choose the iShares MSCI BRIC ETF (BKF), which is down by 11.7% this year, and its downtrend as shown by the orange chart completely opposite to the S&P 500, in blue.

https://static.seekingalpha.com/uploads/2021/12/28/49663886-16407072808537476.png

Source: Trading View

What I like about BKF is that it provides a viable option to own the shares, albeit indirectly, of some of the world’s biggest companies, and this, instead of having to painstakingly screen a long list of stocks and selecting those who have strong fundamentals. This work has already been done by the fund managers, iShares.

Thus, BKF provides exposure to companies in Brazil, Russia, India, and China, four major emerging market countries. For this purpose, it tracks the MSCI BRIC Index which is composed of Chinese stocks that are available to international investors as well as Brazilian, Russian, and Indian equities. It held 667 stocks as of December 23. Most important, its valuations as shown by its price-to-earnings ratio is17.49, lower compared to 22.31 for the SPY.

Thinking aloud, the negative correlation between BKF and SPY seems to be aligned with the idea of BRIC being perceived by some international experts as an emerging power that constitutes a sort of counterweight to the West, namely the U.S. and Western Europe.

Now, there are geopolitical factors like the tussle between the U.S. and China or sanctions imposed on Russia that affect the global balance of power, but BRIC countries, both with regards to the size of their combined population and the landmass they occupy, should play a more prominent role in the world economy.

The same should be the case with their publicly-listed corporations. These include big names like Jack Ma’s Tencent (OTCPK:TCEHY), Infosys (OTCPK:INFY), a software giant from India, Gazprom (OTCPK:GZPMF), Russia’s energy superpower, and Vale SA (VALE), materials play from Brazil.

https://static.seekingalpha.com/uploads/2021/12/28/49663886-16407072805946453.png

Source: iShares.com

This said, with an overwhelming exposure to China, please do expect a lot of turbulence linked to the abrupt way in which regulations are enforced on publicly listed companies by the authorities in that country. Also, with more exposure to the secondary sector like manufacturing, BRIC members are more likely to be impacted by the price of raw materials.

There is also the uncertainty factor as economies around the world surf each Covid wave. Consequently, BKF should experience a higher degree of volatility than for the U.S. and European stock markets.

Still, Chinese companies should form part of any alternative strategy to build a robust worldwide portfolio that should do well even if U.S. large-cap growth decides to take a break. It is also important to choose a region in the world where there is stability and growth.

To this end, the People’s Bank of China (equivalent to the U.S. Fed) recently cut its benchmark lending rate cut from 3.85% to 3.8% for the first time in almost two years, in support of an economy showing some Covid strains as well as suffering from a property slump. This should help the overall Chinese economy.

Therefore, I expect BKY to flirt with the $50 level in 2022, or more than 10-11% upside from its current share price as some degree of market fatigue grasps U.S. markets with inflationary pressures gradually biting in next year.

Finally, unless you are a trader or hold a large percentage of BRIC in your overall portfolio, you should be fine with the daily volume of shares traded averaging only around 11K to 12K compared to approximately 8M-9M for the SPY. This is simply because BKF has much fewer assets than the mighty S&P 500 ETF.

On the other hand, I would pay more attention to BKF’s 0.70% expense ratio, which makes it one of the most expensive funds in its category, but this is largely covered by its dividend yield of 2.86%, with distributions to shareholders made two times per year.

Pro-Communist Party News Outlet to Launch an NFT Collection Despite China’s Crypto Stance

The Chinese government has cracked down on cryptocurrency-related activities over the past few years. However, the crackdown intensified this year as the government banned numerous crypto-related activities.

Xinhua to Release News Digital Collectibles

State-run Xinhua News Agency, the biggest media organization in China, has announced that it will release a collection of nonfungible tokens later this week. The NFT collection is set to be launched on Christmas Eve and will be the first news digital collectibles backed by NFTs in mainland China.

According to local reports, Xinhua will launch a total of 110,001 copies of selected news photos for free. There will be 11 collections, each comprising of 10,000 copies and a special edition copy. The NFTs will be available on Xinhua’s mobile app at 8 pm local time on Christmas Eve.

Xinhua said the NFTs would be the country’s first collection of digital journalistic photos issued via a blockchain. The publication said the idea is to imprint digital memories into the metaverse. The digital collection includes photos that journalists took this year, recording historical moments of 2021. Some of the historic moments include the 100th anniversary of the Chinese Communist Party.

China’s recent milestone of administering over 2.7 billion Covid-19 vaccine doses nationwide is another moment that would be captured in the NFTs.

Chinese Entities are Entering the NFT Space Despite Crypto Crackdown

This latest development comes at a time when Chinese entities are entering the NFT space. Yesterday, JD.com became the latest Chinese tech giant to launch a digital collectible platform, following the footsteps of Alibaba and Tencent.

The Chinese government increased its crackdown on cryptocurrency-related activities this year. Various provinces in China, including Sichuan, banned cryptocurrency mining activities, forcing mining farms and other independent miners to move to Europe and North America.

The government also went further to ban cryptocurrency trading activities, effectively eliminating the little crypto exchanges still operating in China. As a result, numerous crypto exchanges discontinued their services to mainland China users.

The Chinese government also went after cryptocurrency data websites Coinmarketcap and Coingecko. The data websites are no longer available to people in mainland China following the ban in September.

JD.com is Latest Chinese Firm to Enter NFT Space

Top Chinese online retailer, JD.com, has launched a blockchain-backed platform to sell “digital collectibles.”

Chinese Retailer JD Launches own NFT Platform

This comes amidst similar developments by other major tech companies in China, such as Alibaba Group and Tencent Holdings, who have also launched similar platforms despite the tough stance of the Chinese government on cryptocurrency and blockchain technology.

Although the collectibles are not labeled as non-fungible tokens (NFT), the 5 digital assets listed by the retailer on its Lingxi platform, which is part of the JD.con main app, are quite similar to NFTs. 

The fintech arm of JD.com, JD Technology, issued 10000 pieces of 5 different digital collectibles, 2000 apiece. All the digital assets are related to JOY Dog, the company mascot valued at 9.9 yuan ($1.55). According to the platform, all the collectibles were sold on Monday morning.

Chinese Interests in NFTs

These developments show Chinese companies and residents’ level of interest in metaverse and Web 3.0 despite the government’s crackdown on crypto.

“NFT” and “web3/web3.0” have become popular search queries in Asia, with interest from countries such as Singapore, South Korea, Hong Kong, and China leading the way. Data from the foremost Chinese search engine, Baidu, also corroborates this interest.

However, the People’s Daily newspaper, the official media for the ruling Chinese Communist Party, recently spoke against the heightened interest in NFTs. It questioned whether it could be another “zero-sum game hyped by cryptocurrency investors and capital.”

While regulators in China have placed a ban on Cryptocurrencies, there are no laws on NFT yet, which means companies in the country still have room to connect their business plans to the concept. But the growing popularity of metaverse-themed collectibles might lead to some regulations. 

Several Chinese firms have embraced digital collectibles directly and indirectly. The media company 36kr recently gifted 1,124 metaverse-themed digital assets at a conference in Shenzhen on Wednesday.

In Fresh Regulatory Move, China Tells Tech Giants to Stop Blocking Rivals’ Links

The comments, made by the Ministry of Industry and Information Technology (MIIT) at a news briefing, mark the latest step in Beijing’s broad regulatory crackdown that has ensnared sectors from technology to education and property and wiped billions of dollars off the market value of some of the country’s largest companies.

China’s internet is dominated by a handful of technology giants which have historically blocked links and services by rivals on their platforms.

Restricting normal access to internet links without proper reason “affects the user experience, damages the rights of users and disrupts market order,” said MIIT spokesperson Zhao Zhiguo, adding that the ministry had received reports and complaints from users since it launched a review of industry practices in July.

“At present we are guiding relevant companies to carry out self-examination and rectification,” he said, citing instant messaging platforms as one of the first areas they were targeting.

He did not specify what the consequences would be for companies that failed to abide with the new guidelines.

The MIIT did not name any companies, but the 21st Century Business Herald newspaper reported on Saturday that Alibaba Group Holding Ltd and Tencent Holdings Ltd were among the firms told to end the practice by an unspecified time last week.

Shares in Alibaba Group and Tencent Holdings fell on Monday by over 6% and 3% respectively against a 3% decline in the Hang Seng Tech Index.

The practice targeted by the MIIT is common.

Tencent restricts users from sharing content from ByteDance-owned short video app Douyin on Tencent’s instant messaging apps WeChat and QQ. In February, Douyin filed a complaint with a Beijing court saying that it constituted monopolistic behaviour. Tencent has called those accusations baseless.

In other cases, Alibaba’s Taobao and Tmall e-commerce marketplaces do not allow Tencent’s payment service WeChat Pay to be used as a payment option.

Tencent said it supported the MIIT’s guidance and would make the necessary changes in phases.

An Alibaba spokesperson referred Reuters to remarks made by CEO Daniel Zhang on Aug. 3, when he said rectification was “highly necessary”.

“Forced cracks in China’s walled gardens has the potential to re-write China’s digital advertising and e-commerce landscapes,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina.

“In the short term, all eyes will be on Tencent as it comes to grips with what it means to open WeChat to Alibaba and ByteDance.”

The MIIT also said on Monday that China had “too many” electric vehicle (EV) makers and the government will encourage consolidation.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Brenda Ghoh and Shen Yan; Editing by Christopher Cushing, Kenneth Maxwell and Ana Nicolaci da Costa)

U.S. Shares Retreat, European Shares end Little-Changed

Major U.S. indexes were lower, pulling back from earlier gains but still close to all-time highs.

The Dow Jones Industrial Average fell 133.74 points, or 0.38%, to 34,897.33, the S&P 500 lost 14.45 points, or 0.32%, to 4,499.62 and the Nasdaq Composite dropped 4.28 points, or 0.03%, to 15,282.36 by mid afternoon.

Federal Reserve Bank Governor Michelle Bowman added her voice Wednesday to the growing number of policymakers who say the weak August jobs report likely won’t throw off the central bank’s plan to trim its $120 billion in monthly bond purchases later this year.

Earlier in the day, U.S. data showed the number of Americans filing new claims for jobless benefits fell to the lowest level in nearly 18 months last week, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

After falling as much as 0.9% in morning trade, the pan-European STOXX 600 index ended largely unchanged around 467.57 points. The index had shed 1.5% over the past two days on fears of a more-hawkish-than-expected ECB.

Euro zone bonds yields tumbled as the European Central Bank took its first tentative step in withdrawing COVID-era stimulus. Southern Europe led a fall in euro zone sovereign bond yields.

The euro rose 0.15% against the dollar, climbing for the first time in four sessions, while bond markets cheered by sending French 10-yields negative again.

“We’re seeing some modest weakness mainly because the market is just in flux. There is no real clarity on when we will start to see the Fed and ECB start to pull back stimulus,” said Edward Moya, a senior market analyst with OANDA in New York.

Instead of hinting at any potential end date for its pandemic-era purchase programme, European Central Bank President Christine Lagarde instead channelled the spirit of former British Prime Minister Margaret Thatcher, saying: “The lady isn’t tapering.”

Germany’s 10-year yield, the benchmark for the bloc, fell. [GVD/EUR]

FRAGILE CHINA

MSCI’s benchmark for global equity markets fell 0.33% to 740.33. Emerging markets stocks fell 1.18%.

The UK’s FTSE 100 dropped 1% with low-cost airline easyJet tumbling over 10% as it tapped shareholders for 1.2 billion pounds ($1.7 billion). [.EU]

MSCI’s broadest index of Asia-Pacific shares ended down 1%, which was its worst daily performance since Aug. 19, the last time markets decided they were worried about the U.S. Federal Reserve tapering its massive asset purchase programme.

Chinese tech giants Tencent, NetEase and Alibaba had slumped 8.5%, 11% and 6% respectively after online gaming chiefs were summoned by authorities to check they are sticking to strict new rules for the sector.

“The global story is looking soft and it’s being hit by the Delta variant plus concern about potentially the Fed still moving towards a taper,” said Rob Carnell, Asia head of research at ING. “It’s an unsettling combination of things.”

The China angst had meant Hong Kong, where many heavyweight Chinese firms are also listed, shed 2.3%.

News that Chinese authorities had told gaming firms to resolutely curb incorrect tendencies such as focusing “only on money” and “only on traffic” had hurt companies with large gaming operations. Tencent fell 8.5%, Bilibili lost nearly 9% and NetEase slumped 11%.

There was more turbulence too for the country’s most indebted property giant, Evergrande.

Media reports the company would suspend some interest payments on loans and payments to its wealth management products sent its shares down more than 10% at one point, although they recovered almost half of the drop on news that some creditors had agreed to loan payment extensions.

Korea’s Kospi fell 1.5%, also under pressure from regulatory scrutiny of local tech players. In Korea’s case, fintech names such as Kakao Corp , which sank 7.2%, and Naver Corp, down 6.9%, were in the spotlight.

Australian stocks lost nearly 2% after payrolls data showed a sharp drop in jobs in the first half of August.

Gold steadied in choppy trading, buoyed by a slight retreat in the dollar. Spot bullion prices were up 0.4%.

Oil prices fell on China’s plan to tap state reserves and a smaller-than-expected drawdown in U.S. crude supplies.

Brent crude was last down $1.14, or down 1.57%, at $71.46 a barrel. U.S. crude was last down $1.16, or down 1.66% at %68.15.

($1 = 0.7246 pounds)

(Additional reporting by Alun John in Hong Kong; Editing by Carmel Crimmins and Nick Zieminski)

European Stocks Edge Higher After Data, Virus Worries Linger

The pan-European STOXX 600 was 0.1% higher, after the index marked its longest winning streak in over a decade.

Tighter scrutiny of China’s internet sector, a nationwide lockdown in New Zealand and movement restrictions in several Asian countries kept investors on edge even as European economies continued to recover from pandemic lows.

The travel and leisure sector fell 1.0%, with holiday company TUI Group and British Airways owner IAG leading declines.

“Travel stocks are experiencing yet another day of turbulence, with questions over travel regulations serving to highlight the uncertain road ahead,” Joshua Mahony, senior market analyst at IG, wrote in a client note.

Dutch tech firm Prosus, which has a stake in Chinese tech giant Tencent, fell 3.2%.

Economically sensitive sectors such as oil and gas, automakers and banks also retreated.

Data showed the euro zone economy grew 2% in the second quarter, confirming its earlier reading as the relaxation of coronavirus restrictions spurred economic activity after a brief recession.

“The strong growth in euro zone GDP in Q2 is likely to be repeated in Q3 despite the spread of the Delta variant, and should bring the economy back towards its pre-virus size in the coming months,” said Jessica Hinds, Europe economist at Capital Economics.

“But the southern economies continue to lag, with travel restrictions still holding back their tourism sectors.”

A rally in hard-hit cyclical stocks helped European shares hit all-time highs last week as expectations of a record jump in European corporate profit and optimism around the pace of vaccinations underpinned the continent’s economic recovery prospects.

However, a monthly survey of fund managers by Bank of America showed only less than half of the respondents now expect the European economy to further improve over the next 12 months – the lowest proportion since last June.

UK-listed shares of BHP Group gained 3.4.4% after the world’s biggest miner posted its best annual profit in nearly a decade and said it would pay a record dividend.

Online trading platform Plus500 jumped 5.1.1% as it forecast annual revenue to be “significantly ahead” of analysts’ estimates.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Saumyadeb Chakrabarty, Subhranshu Sahu and Mark Heinrich)

China Launches Antitrust Probe Into Tencent-Backed Property Broker Ke

The investigation is the latest into China’s big so-called “platform” companies that match sellers and buyers, several of which have been accused by regulators of exploiting consumers.

KE Holdings, which operates housing platforms Lianjia and Beike in China, was warned last month by the State Administration for Market Regulation (SAMR), along with dozens of internet companies, against any abuse of market dominance and told to conduct self-inspections.

SAMR has been formally investigating in recent weeks whether KE Holdings forces real estate developers to list housing information only on its platforms, including Lianjia and Beike, a tactic known as “choose one from two”, the people said, declining to be named because the information is not public.

The investigation has not been publicly announced. It is not known when it will be wrapped up or what it could entail for KE Holdings.

KE Holdings declined to comment to Reuters but in a later statement on its Chinese social media accounts Beike denied that “SAMR had opened a case against Beike”.

SAMR did not immediately respond to a request for comment.

KE’s New York-listed shares fell as much as nearly 10% in pre-market trading on Tuesday, after the Reuters report.

Graphic: KE Holdings shares – https://fingfx.thomsonreuters.com/gfx/mkt/qzjpqbbjevx/image-1621913862223.png

Last month, SAMR hit Alibaba Group with a record $2.8 billion fine after finding that the e-commerce giant had been preventing its merchants from using other online e-commerce platforms since 2015.

Tencent itself is in the firing line, with SAMR preparing to levy a fine of at least $1.5 billion on the gaming and social media behemoth, Reuters reported in April. SAMR also announced an investigation last month into Tencent-backed food delivery giant Meituan.

SAMR has stationed inspectors since late April in 17 companies that operate platforms, including KE Holdings, to enhance the efficiency of antitrust inspections, one of the sources said.

KE Holdings, which also counts SoftBank Group Corp among its major backers, launched Lianjia, formerly known as Beijing Homelink Real Estate Brokerage, 20 years ago.

It grew into one of China’s largest bricks-and-mortar property agents and later set up Beike as a separate online housing platform matching buyers and sellers, renters and landlords, as well as providing home finance.

It listed in New York in August, and after sharp gains last year the shares are down 15% so far in 2021. Still, it has a market value of about $62 billion.

On top of the antitrust probe, KE Holdings faces uncertainty following the death last week of its 50-year-old founder and chairman, Zuo Hui, due to an illness. Co-founder Peng Yongdong was appointed chairman this week.

Its biggest revenue sources are from existing home and new home transactions, with market shares of 26% and 35%, respectively, of gross transaction volume in 2020, according to TF Securities, a relatively high proportion in China’s fragmented housing market. KE Holdings posted stellar first quarter financial results last week, with net revenue up 191% on the year, bolstered byChina’s robust property market that quickly rebounded last yearfrom the coronavirus crisis.

(Reporting by Yingzhi Yang, Cheng Leng and Tony Munroe in Beijing; Editing by Muralikumar Anantharaman and Louise Heavens)

Exclusive: China’s Tencent in Talks with U.S. to Keep Gaming Investments

By Echo Wang and Greg Roumeliotis

Tencent has been in talks with the Committee on Foreign Investment in the United States (CFIUS), which has the authority to order the Chinese technology giant to divest U.S. holdings, since the second half of last year, the sources said.

CFIUS has been looking in to whether Epic Games’ and Riot Games’ handling of the personal data of their users constitutes a national security risk because of their Chinese ownership, the sources added.

Tencent owns a 40% stake in Epic Games, the maker of popular video game Fortnite. Tencent also bought a majority stake in Riot Games in 2011 and acquired the rest of the company in 2015. Riot Games is the developer of “League of Legends,” one of the world’s most popular desktop-based games.

Tencent is negotiating risk-mitigation measures with CFIUS so it can keep its investments, according to the sources. The details of the proposed measures could not be learned. They typically involve ringfencing the owner of a company from operations that have national security implications. They often call for the appointment of independent auditors to monitor the implementation of these agreements.

One of the sources said Epic Games has not been sharing any user data with Tencent.

The sources cautioned there is no certainty that Tencent will clinch deals to keep its investments and asked not to be identified because the matter is confidential.

Tencent, Epic Games and a CFIUS representative at the U.S. Treasury Department declined to comment.

A Riot Games spokesman said the Los Angeles-based company operates independently of Tencent and that it has implemented “industry-leading practices” to protect player data. He declined to comment on Riot Games’ discussions with CFIUS.

CFIUS has been cracking down on Chinese ownership of U.S. technology assets in the last few years, amid an escalation in tensions between Washington and Beijing over trade, human rights and the protection of intellectual property. U.S. officials have expressed concerns that the personal data of U.S. citizens could end up in the hands of China’s Communist Party government.

President Joe Biden’s administration has maintained the hawkish stance against China inherited in January from his predecessor Donald Trump, albeit with more of a focus on geopolitical issues such as the future of Taiwan and Hong Kong, as well as China’s persecution of the Uyghurs in Xinjiang.

Yet many key CFIUS roles have not yet been staffed. This has provided a reprieve to China’s ByteDance, which was ordered by Trump last year to sell its popular short video app TikTok but balked at a transaction that would have involved Oracle Corp and Walmart Inc. CFIUS has not sought to enforce the divestiture order under Biden.

Epic is locked in a legal fight with Apple Inc over access to the iPhone maker’s app store. It alleges that Apple forces developers to use its in-app payment systems – which charge commissions of up to 30% – and to submit to app-review guidelines that discriminate against products that compete with Apple’s own.

Apple argues that Epic Games broke their contract when it introduced its own in-app payment system in Fortnite to circumvent Apple’s commissions. It says the way it runs the app store inspires trust in consumers to open up their wallets to unknown developers.

Tencent’s vast businesses include video games, content streaming, social media, advertising and cloud services. China has in recent months sought to curb the economic and social power of Tencent and other internet companies such as Alibaba Group Holding Ltd, in a clampdown backed by President Xi Jinping. Reuters reported last week that Beijing was preparing a substantial antitrust fine for Tencent.

(Reporting by Echo Wang in Miami and Greg Roumeliotis in New York; Editing by Matthew Lewis)