Chinese investors flirting with cryptocurrency

Chinese investors are exploring the cryptocurrency market in Hong Kong even as mainland markets are not showing any positive signs by way of Initial Public Offering (IPO) or market movement of any kind. Cryptocurrency is banned in the mainland, but crypto trading is allowed in Hong Kong.

So many Chinese investors who are allowed to spend $50,000 abroad are using the amount to invest in cryptocurrency. China market-watchers believe that the Chinese government may relent to allow trading in cryptocurrency after watching the trend in Hong Kong, and that was the reason they kept the door open in Hong Kong. 

The necessity of exploring the crypto market is explained by an executive in a Hong Kong-based crypto exchange that investment in the mainland had become “risky, uncertain and disappointing” and “so people are looking to allocate assets offshore”. The executive who wanted to remain anonymous said, “Almost every day, we see mainland investors coming into this market.”

The risks involved in trading in cryptocurrency are not to be underplayed because of the compulsions felt by the Chinese investors to turn to the cryptocurrency gold rush. If there is a cryptocurrency bubble and bust that would see part of the wealth of Chinese investors vanish, the Western governments are sure to watch with glee the woes of the Chinese economy. The belief in Western capitals is that the weakening of China’s economy would weaken the tightening hold of Communist party leader and President Xi Jinping over the country, and China would be less assertive in international affairs.

It is overlooked, however, that Xi’s hardening stance is because of the slowdown in the economy. The attack on corruption in party and government, and tax evasion of individual tycoons is only a pretext.

The United States has survived the mini-meltdown of cryptocurrency ventures like FTX of Sam Bankman-Fried in November 2002 when he declared insolvency and was found defrauding investors, and the total investment in cryptocurrency which peaked at $3 trillion in 2021 lost $900 billion in 2022.

But American markets show that cryptocurrency had recovered but it is not yet back to the 2021 peak level. So, it should be possible that if there were to be a crypto bubble flowed by a bust, the Chinese economy should be able to survive intact even as the American did.

What happens to the Chinese economy is of much interest to the Americans and Europeans for political reasons. They believe that a dent to the Chinese economy would make China less assertive in its foreign policy. The Western watchers of China are of course following the storyline of what had happened to Communist Russia in 1991, how its economy was shattered and it lost the perch of the superpower.

China is playing its cards shrewdly. It is asserting its way only with regard to Taiwan and the South China Sea. It is not interested in raising its stakes beyond its strategic sphere. And the Chinese economy is not built on the Communist model of everything owned by the state. When the state collapsed the economy collapsed.

In the case of China, even if a part of the market goes up in flames as it were, the Chinese state will survive the market disaster. And unlike Russia during the Cold War, China is not battling the West on ideological grounds. It is on the strength of its market economy that the Chinese government of Xi is flexing its muscle. The nature of the tussle between the two big economies of the world is indeed different this time round. And also, trouble in China’s economy would dampen the global economy as well because China’s share of the global GDP is a substantial 18 per cent, and its share in global consumption is 13 per cent.