Hangzhou, hometown of Chinese e-commerce giant Alibaba, invests in US$1.6 billion blockchain fund

The government of Hangzhou, the hometown of Alibaba Group Holding, China’s largest e-commerce company, is investing in a 10 billion yuan (US$1.6 billion) blockchain fund.

The Hangzhou government said on Monday, at the opening ceremony of the Blockchain Industrial Park, that it would invest 30 per cent, or 3 billion yuan, in the fund along with Tulan Investment, a venture capital company.

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The fund will invest in “quality” blockchain projects, and the park has been designed to attract industry start-ups and professionals. Blockchain technology underpins bitcoin, the virtual currency.

The fund, which claims to be the world’s biggest fund investing in blockchain projects, will be managed by Tulan and INBlockchain, a company founded by virtual currency entrepreneur Li Xiaolai, who is also the chief executive of initial coin offering (ICO) project Press.one.

ICOs, which were banned by China in September last year, are a form of crowd sourcing through which companies exchange their newly created cryptocurrencies – called tokens – for payment in an existing currency, which can be cash or an established cryptocurrency. ICOs have raised alarm bells among regulators globally because of high risks and poor disclosure to investors.

China has been tough on ICOs and has ordered the shut down of domestic platforms for ICO marketing. It has also stopped cryptocurrency exchanges from trading in the yuan and has blocked access to foreign sites that promote ICOs.

According to research company CB Insights, ICOs raised more than US$5 billion across about 800 deals in 2017, while equity investors injected US$1 billion in 215 deals in blockchain start-ups last year.

Few blockchain start-ups have, however, been able to build a sustainable business yet, and many have struggled to build a marketable product around the technology. But they have been able to quickly raise funds either from equity financing or by ICOs.

“Most major blockchain companies are already, or in the process of, rebranding themselves into distributed ledger technology (DLT) companies,” said Neil Woodfine, a Beijing-based growth manager for Asia at Wyre, a cross-border payments company from San Francisco. “Which is just a fancy way of saying distributed database. Anyone can claim to be launching a blockchain start-up. But no one is equipped or experienced enough to assess their claims.”

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Hangzhou, the capital of Zhejiang province in eastern China, hosted the G20 summit in 2016, and has previously said it had identified blockchain, along with artificial intelligence, quantum technology, biotechnology and life sciences, as a key growth area.

The Hangzhou government said its economy was driven by information technology, which contributed with more than 50 per cent of its overall gross domestic product growth in 2016.