China Construction Bank pulls US$3 billion blockchain debt programme amid scrutiny on fintech, financial risks
- Chinese lender has notified the Labuan regulator about its decision to stop the digital bond programme, Fusang Exchange says
- Decision came on the verge of financial breakthrough just as regulators started tightening oversight of fintech risks
The bank, the world’s second-largest lender, “decided not to proceed” with the programme without offering an explanation, Fusang Exchange, a virtual stock exchange for digital initial offerings, said in a statement on Monday.
CCB’s branch in Labuan was the lead arranger and listing sponsor of the digital security to be issued by a special purpose vehicle known as Longbond. The security would have matured in February 2021 and would have paid investors an annualised rate of 0.7 per cent, or Libor plus 50 basis points, higher than returns on the fixed deposit rate, according to a November 11 statement.
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“The exchange has accepted this decision, and is announcing the suspension of the listing with immediate effect,” Fusang said in the statement on Monday. “The exchange shall ensure an orderly withdrawal of all related listing processes and procedures, and has initiated the return of all investors’ funds.”
CCB’s corporate communications officer in Beijing did not return phone calls or reply to text messages on Monday seeking comment on the withdrawal. CCB has notified the Labuan Financial Services Authority about the cancellation, according to Fusang’s statement.
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Given that China’s central bank is also rolling out its own sovereign digital currency, or digital yuan, speculation abounds. CCB’s digital bonds, which can be bought and traded using US dollars or bitcoin, appear to undermine efforts to safeguard its currency sovereignty.
“If a retail investor could use bitcoin or other cryptocurrencies to trade such digital bonds backed by a Chinese bank, there may not be a welcoming stance from the policymakers’ perspective,” said Jacky Zuo, an analyst at China Renaissance based in Hong Kong. “This could be seen as challenging the digital yuan.”
China said more than four million transactions valued at 2 billion yuan (US$299 million) have been made using the digital yuan in a trial in the four Chinese cities of Shenzhen, Suzhou, Xiong’an and Chengdu.
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If other smaller banks replicate CCB’s move to also start funding their own liabilities through a digital bond programme, there may be concerns about investor protection because of a history of hacking and losses related to bitcoin and cryptocurrencies.
By tokenising certificates of deposits, blockchain has enabled retail investors to get access to high-priced securities such as bonds from as low as US$100, without the usual vetting procedures that apply to professional investors. In China, certificates of deposit cost several tens of thousand yuan each and attract mainly institutional investors.
“Policymakers are worried about fintech risks and they have been generally cautious towards innovation of late,” said Zuo.
It is not immediately clear if CCB had obtained an official consent for the issuance. Fusang was quick to emphasise that nothing was amiss in its handling of the programme.
“While we are disappointed that this listing has been suspended, there were no legal, regulatory, operational, or technical issues with the Fusang platform, or the IPO process and filing,” chief executive Henry Chong said in Monday’s statement. “The overwhelming response has been a fantastic validation of the digital issuance and listing process that we have created.”