Guangfa Bank, one of the biggest commercial banks in mainland China, has recently launched the first cross-border blockchain-based financial settlement system, allowing for seamless payment settlements between mainland China, Hong Kong and Macau — what China dubs the “Greater Bay Area.” 

The platform provides a number of different information verification services, including customs declaration information, and a cross-border credit information authorization verification service.

In initial pilots conducted in China’s southern Guangdong province, the platform performed well. As per reports, it had serviced 524 companies and closed 2,779 loans with a total value of $7.782 billion.

This is all part of Beijing’s plan to lower the barriers to cross-border trade and transaction settlements by encouraging the fintech sector to innovate. Per the China Banking Regulatory Commission’s master plan for the region, fintech will be playing a major role and there are policies in place to allow firms to build out sandboxes and test new technologies without needing to jump through regulatory hoops. 

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Beijing views enhancing trade corridors in this area of strategic importance to China’s overall coming growth in the coming decades, but trade isn’t exactly seamless. Hong Kong, Macau and mainland China have three vastly different legal systems: Macau’s is based on Portuguese civil law, Hong Kong’s on British common law, and the mainland’s is on a unique “socialist legal system.”

Because of the lack of commonality between jurisdictions, it’s tough to build up trust. Small and medium sized enterprises (SMEs) have it the worst, as they lack the resources to dedicate to the required administrative requirements for building up cross-border credit and ensuring compliance with rarely-overlapping customs regulations. Without the scale of a big corporation that has substantial administrative resources, an SME would have challenges getting a credit line across the three borders to be used in different parts of the supply chain. Suppliers might not trust the integrity of the credit note being presented. Cross-border data protection laws might stop a know-your-customer process from being completed.

But Beijing would certainly like this dream of a harmonized Greater Bay Area to be a reality, rivaling other economic hubs like the Bay Area in San Francisco and Tokyo Bay in Japan. According to published plans, China is hoping for this to be a reality by 2035. But despite the friction points presented by the competing legal systems, the market is there: EY estimates that the GDP of the region would be close to $2 trillion, coming just under California. So expect companies to bring out the decentralized ledgers — they know there’s money to be made here.