Some views on the Web3 situation in Hong Kong

Last week, the Web3 Carnival took place in Hong Kong. Although I didn't go there, I was looking forward to it and paid close attention to the new views and insights. I learned a lot, but I was particularly dissatisfied with the fact that no one mentioned the most important question in the public discussion: What is the decision-making logic behind Hong Kong's Web3 new policy?

This new Hong Kong policy, without Beijing's support, or at least permission, is unthinkable. So this involves a series of questions: why did the government make such a decision? Why did Beijing acquiesce? Is Beijing's attitude based on deliberation or expediency? In the future international political, economic and technological game, will Hong Kong and Beijing's attitude towards Web3 strengthen, weaken or fluctuate? If we do not think and judge these problems, the current development of Web3 in Hong Kong cannot be carried out to the end, and the achievements already made may be lost. Of course, this is a difficult question to discuss, so most people avoid talking about it, and I can understand that. But see a lot of chanting style singing, out of the fundamentals, I believe a lot of it is also disingenuous.

So I put this question out on Twitter, and in an unprecedented situation, although I received a lot of replies from my fellow Twitterers, a lot of the communication took place through private messages and chat, and a lot of people asked me, what are the views expressed by other people who talk to you privately? These exchanges made me feel that it was worth bringing this issue to the table. I share your concerns, but I think there are a lot of points to be made.

Of course, if we only discuss the issue on a case-by-case basis, we should not see the forest for the trees and analyze it in the light of the current international situation. But I don't have the time and energy for a long speech. Therefore, I choose a compromise plan to express my views, which is to list the main views and logic in a way similar to a long tweet, without in-depth analysis and proof, and without explaining and quoting the source of the terms and views involved. First, to establish the evidence, second, to introduce a new example, and third, to facilitate our internal strategic discussion later.

The first thing to consider is the context.

1. The overall situation of the world today is that it is entering a new Cold War phase, which will take 10 to 30 years, most likely around 20 years.

2. This is a cold war with low intensity and gray scale.The two sides of this new Cold War, the United States and China, no doubt have no illusions about returning to cooperation, but they are afraid of the consequences of fierce confrontation and hope to control the intensity of confrontation. Therefore, their attitude is not firm. With the change of time, there will be a lot of swings and ambiguities, and there will be a large space for blending.

3. The main battleground of this new Cold War is technological innovation and the real economy.China hopes to make use of its advantages in real economy to extend upward, gain advantages in scientific and technological innovation, and realize the independence of the whole supply chain from innovation to manufacturing, while the United States hopes to make use of its advantages in scientific and technological innovation to recover the key links of manufacturing, to promote the return of the real economy to its homeland, and to rearrange its supply chain globally.

4. The United States and China have their own risk points. There are two main risks in the US. First, risks to the financial system arising from the historic weakening of the role of the dollar and Wall Street. In the process of supply chain reflux, the United States will experience long-term inflation, so it will be forced to raise interest rates to resist inflation, and this process will cause a large amount of dollars to flow back to the United States, which will make the supply of dollars in the international market insufficient, thus weakening the global status of the dollar and thus the position of Wall Street financial groups.

Of course, this process is conducive to the revitalization of the real economy of the United States, the prosperity of domestic employment, and the increase of the relative influence of the military-industrial complex, but there is a risk of financial instability in the process. The second risk is that the new technological revolution will result in job displacement. More broadly, a few highly skilled people will be left behind by the majority of ordinary Americans. This desperate gap will inevitably lead to deep social contradictions. There are three risks for China.

The first is that, with supply chains moving out of the country and real estate bubbles coming to an end, the debt-driven growth model has become unsustainable for many years, and the process of forced deleveraging poses a threat to the economy, employment and people's livelihood. If the risk is mitigated by printing money, hyperinflation is likely.

Second, due to external blockade and constraints, scientific and technological innovation is increasingly linked with rivals, leading to the risk of overall backwardness. The third is the risk of war.

5. In a cold war in which neither side is resolute enough, the intensity is limited, and each has its own weaknesses and risk points, the two sides must be careful to preserve large channels of communication, coordination mechanisms, room for manoeuvre and room for exchange.The greater the space, the greater the opportunities for peripheral economies, especially those at the competitive border.

The second is about the current technological revolution.

1. A new round of technological revolution is taking place in the United States. The core technologies of this round of technological revolution include: strong artificial intelligence, unmanned vehicles, robots, new human-computer interaction technologies (brain-computer interfaces, etc.), quantum computing, next-generation aerospace technologies, satellite Internet, biological and genetic engineering, new energy and new materials. Blockchain is an institutional technology and will play an important role in this round of technological revolution. However, due to its high openness and low threshold of technology diffusion, blockchain technology is not the focus of competition.

2. The technological revolution, if translated into the new industrial revolution, will determine the outcome of the competition. The current technological revolution in the United States is only in its infancy, and it remains to be seen whether simultaneous technological breakthroughs in multiple fields can chemically interact with each other to spark a new industrial revolution. But if the new Industrial Revolution were to take place in the United States, most of the economic and social problems currently afflicting the country would be swept away. China has not yet established a mechanism for original scientific and technological innovation, and has been dragged into this competition ahead of time, so it is relatively passive.

3. China will do its best to track the technological revolution. China does not have the option of losing the competition in science and technology, because if it loses the competition in science and technology, the industrial chain advantage it has gained before will be wiped out, and it can only make peace at a very unfavorable situation. Therefore, China must do everything possible not to lag behind in this technological revolution. The US is also well aware of this and has imposed a blockade on China's cutting-edge technologies in an effort to ensure that key technologies do not flow into China or be overtaken by China.

China, in turn, is bound to make every effort to break through the blockade and achieve technological leapfrogging, or at least not generational backwardness. In addition to focusing on domestic scientific research for tracking and breakthrough, it will also try its best to acquire advanced technologies through contact with the United States and third parties. This blockade and the confrontation to break the blockade, combined with the ambiguities and exchanges in the new Cold War mentioned in the previous section, will create a lot of opportunities for technological wealth in China and in certain areas around China.

Then there are some views on money and finance.

1. The current US dollar interest rate reflux, in the global status is indeed declining. The BRICS countries' desire to de-dollarize is directly attributable to the US Federal Reserve's interest rate hike.

2. China's acceleration of RMB internationalization at this point in time can indeed achieve twice the result with half the effort. But the current model of promoting the internationalization of the yuan through currency swaps will not generate much seigniorage for China in the foreseeable future. Specifically, China is currently running a trade surplus with most of the world's countries. That is to say, if we had currency swaps instead of dollars, China and its trading partners would pay seigniorage to each other. But since China is a trade surplus country, after the difference, China must pay more seigniorage to other countries than other countries pay to China. Sure, it has weakened the dollar, but not as much as many people think.

3. Another consequence of accelerating the internationalization of RMB is the decline of China's US dollar reserves and the pressure on Hong Kong dollar. A decline in China's US dollar reserves could lead to the withdrawal of US dollar reserves from Hong Kong through the renminbi and Hong Kong dollar swap mechanism, thereby putting material pressure on the Hong Kong dollar peg. This pressure is particularly heavy in the context of a rising dollar.

With the above background, we can discuss the main point.

1. Blockchain does four things.The first is infrastructure as a digital currency and digital asset. The second is to serve as the infrastructure for Web3, creating a next generation Internet of shared ownership. Third, in the historical stage of peaceful coexistence between human and artificial intelligence, as a tool for human control and restraint of artificial intelligence. The fourth is the infrastructure for distributing important resources such as governance power, energy, computing power and data in the super-large distributed network composed of human, artificial intelligence and robots. Therefore, blockchain is also a key technology in the next generation of scientific and technological revolution, is a battlefield.