Wang Feng, Dai Menghao, Yu Fengzhen - Compliance Department, King & Wood Mallesons
Since its establishment in 2018, transforming Hainan Free Trade Port (FTP) into a "Digital Free Trade Port" has been a key initiative to deepen reforms, foster innovation, and expand openness. On November 9, 2019, China’s Ministry of Industry and Information Technology (MIIT) released the Implementation Plan for Supporting Hainan’s FTP Development, advocating blockchain adoption, cross-border supply chain systems, and partnerships with leading blockchain firms to build "Digital Hainan." By May 2020, Hainan’s Department of Industry and Information Technology introduced policies to accelerate blockchain innovation, including a 10 billion yuan blockchain industry fund and the "Chain+Hainan" ecosystem.
Against this backdrop, blockchain’s role in international trade is pivotal for Hainan’s digital transformation. As noted by Hyperledger Executive Director Brian Behlendorf, blockchain’s primary applications are supply chain management and trade finance:
- Supply Chain: Blockchain enables transparent product tracking (e.g., Moutai liquor traceability).
- Trade Finance: It streamlines cross-border payments and multi-currency settlements, complementing China’s central bank digital currency (DC/EP) trials.
This article explores blockchain’s potential in international trade, practical applications, and legal considerations, structured into four parts:
- Blockchain Basics: Concepts, classifications, and evolution.
- Blockchain’s Role in Trade Digitalization: Trust-building, efficiency, and security.
- Real-World Use Cases: ATA Carnet digitization and cross-border payments.
- Legal Issues: Cryptocurrency regulation and smart contracts.
Part 1: Understanding Blockchain
1. What Is Blockchain?
Born from 2008 Bitcoin whitepaper by Satoshi Nakamoto, blockchain is a decentralized ledger using cryptographic hashes to ensure data immutability. Unlike Bitcoin (a blockchain application), the technology itself supports diverse uses.
2. Blockchain Types
| Type | Definition | Use Case |
|------------|-------------------------------------|------------------------------|
| Public | Fully transparent (e.g., Bitcoin) | Open cryptocurrencies |
| Private | Restricted access (e.g., audits) | Internal corporate systems |
| Consortium | Multi-organization control (e.g., Hyperledger) | Industry collaborations |
3. Blockchain’s Evolution
- 1.0 (Digital Currency): Bitcoin, Libra, and China’s DC/EP.
- 2.0 (Smart Contracts): Self-executing code (e.g., Ethereum).
- 3.0 (Smart Society): Integration with AI/IoT for governance.
Part 2: Blockchain’s Value for Hainan FTP
1. Digital Proof of Ownership
Replaces paper-heavy processes (e.g., bills of lading) with tamper-proof records, reducing fraud risks.
2. Trust Mechanism
Simplifies compliance via shared data among traders, banks, and customs (e.g., WTO’s Trade Facilitation Agreement cuts costs by 14.3%).
3. Efficient Payments
Enables real-time, low-cost cross-border transactions (e.g., Ant Group’s 3-second Hong Kong–Philippines transfers).
Part 3: Blockchain Applications
1. Global Projects
- Singapore/HK’s Global Trade Connection Network (2017).
- EU’s ATA Carnet digitization via blockchain (2018).
2. Case Study: Jasper-Ubin Project
A Canada-Singapore initiative using hashed timelock contracts (HTLC) for instant, multi-currency settlements.
Part 4: Legal Challenges
1. Cryptocurrency Regulation
- China: Bans private cryptocurrencies (e.g., Bitcoin) but promotes DC/EP.
- U.S.: Multi-agency oversight (FinCEN for AML, SEC for tokens).
2. Smart Contracts
Lack traditional legal enforceability; disputes require conventional contract law.
FAQs
Q1: How does blockchain prevent fraud in trade documents?
A: By creating immutable, timestamped records (e.g., ATA Carnets).
Q2: Is Hainan’s blockchain fund accessible to foreign firms?
A: Policies encourage global partnerships, but compliance with local laws is essential.
Q3: Can smart contracts replace lawyers?
A: No—they automate execution but can’t handle complex legal interpretations.
👉 Explore blockchain’s future in trade | 👉 Hainan’s digital policies
Conclusion: Blockchain positions Hainan FTP as a leader in digital trade, balancing innovation with robust legal frameworks.