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BlockchainBusiness & Finance

China Uses Blockchain Technology to Fight Corruption

Since it’s arrival, China has been keen towards blockchain technology. The country has been enhancing efficiency in all sorts of departments with the applications of blockchain technology. Chinese Central Bank has acquired blockchain to digitize the former system of paper checks. Moreover, Alibaba-affiliated Insurtech firm innovated blockchain technology for healthcare services to reduce healthcare insurance costs.

Moving forward, Chinese President, Xi Jinping endorsed the adoption of blockchain in his speech. Considering technology advancements in today’s world, he applauded the prospects brought by blockchain technology and considered it revolutionary. He said:

Since the 21st century began, global scientific and technological innovation has entered an unprecedented period of intensive activity. A new round of scientific and technological revolutions and industrial changes is reconstructing the global innovation map and reshaping the global economic structure….The new generation of information technology represented by artificial intelligence, quantum information, mobile communication, internet of things, and blockchain is accelerating breakthroughs in its range of applications.

After his encouragement, the acceptance and advocacy for blockchain technology has blossomed. A program on CCTV finance regarded it as ’10 times’ more valuable than internet. And since then, the country has been wisely using blockchain technology to solve real world problems. Recently, China has taken steps to tackle corruption with it, fake invoices used to steal funds was a huge problem faced by China as its Fapiao invoice system failed to prevent the people from manipulating their records. Therefore, the country has initiated use of blockchain technology for eradicating paper corruption, which is very common these days.

The Fapiao Invoice system

In Chinese language, ‘fapiao’ means official invoice. A fapiao is a receipt that serves as the proof of purchase for goods. China has been working with the the invoice system, which was employed in 1980, to ensure that tax evasions are prevented. China’s tax authorities make use of fapiao so they can preempt tax payments on future sales from everyone and forestall tax evasions.

Chinese government issues different types of fapiao so it can tax different types of services depending on the locations of those services. Common types of services using fapiao include: rental properties, utilities, education, vehicles, medical, training, and shipping.

Problems with Fapiao system

Although the system was establish to make advance payments possible so tax evasions could be cut down, but unfortunately, it has collapsed down due to several reasons. The system has been facing corruption and failure. Tax invoices are easily duplicated and accessed by people on the streets to achieve their fraudulent goals. Sometimes, besides evading taxes, fake invoices are also used to cheat employers. The dilemma rests with the comfortable access of people to these fake receipts. There are open advertisement signs all over the country and even text messages on phones and fax machines are used for advertisements and promotions of fake receipts.

Besides China declaring it as an illegal activity subjected to lawful punishments, 5,134 people were detained and 1,045 sites with fake invoice production were closed who were associated with these illegal activities. In 2010, 1,593 criminal gangs and 74,833 enterprises were linked with submission of fake receipts. Even GlaxoSmithKline, a pharmaceutical company, went in shock after disclosing that their four senior executives in China had been practicing aforementioned illegal activity to embezzle millions of dollars over the last six years. Therefore, confirming the widespread and presence of fake receipts virus.

The solution

At the moment, the invoice procedure is failing due to false reporting, over reporting, and other unusual and fake doings. So under these circumstances, blockchain technology has provided a solution with its decentralized and encrypted ledger. With it, all the authentic record of transactions can be maintained. The amount, time, and location of the transaction can be error-freely recorded and further submitted for tax evaluation. Therefore, a perfect replacement ending the frequent and common wrongdoings observed with fapiao.

In the past, Shenzhen National Taxation Bureau joined hands with Tencent to tackle the tampering practices contributing to tax evasions. Both agreed on establishing ‘Zhi Tax’ Innovation laboratory for working on a digital invoice solution that involved blockchain technology. Following the agreement, the agenda of investing in  blockchain was set out and both parties announced the solution by stating:

The digital invoice based on blockchain technology has the characteristics of complete traceability of the whole process and irreversible information, which is consistent with the invoice logic, which can effectively avoid false invoices and improve the invoice supervision process.

Success achieved

China has successfully launched its first blockchain electronic invoice in Shenzhen. The ‘blockchain+invoice’ technology ecosystem has been recognized and approved by State Administration of Taxation. Following the release of the electronic invoice, Shenzhen Guomao Rotating Restaurant, Shenzhen Treasure parking lot, Pingshan Auto Repair Shop, and Image Tencent Impression Coffee shop have adopted the system. Moreover, WeChat app has also employed the latest solution for their payment procedures, thereby offering customers one click reimbursement.

Furthermore, China Aerospace Science and Industry Corporation Ltd. has deployed a system like the one used in Shenzhen as well. They have done so to expand the method of supervising invoices nationwide. China is expected to adhere to electronic invoices for almost 55 billion invoices till 2022. China Aerospace Science has built blockchain-based electronic billing system for efficient, non-tampered and privacy protected transactions. The system is currently operating in Beijing, Shandong, Hubei, Anhui, Ningxia etc. and is expected to encompass 300,000 invoices and non-tax bills. Once again, blockchain technology based solution is acquired to establish an electronic bill chain for tax bureau supervision, third-party service platform and social organization, secure and convenient platform.

China has been playing pretty good with handling blockchain technology for solving problems. It was about time that China created an antidote enriched in blockchain technology for one of the most crucial problems faced by country i.e corruption. Now, people have got high hopes regarding the technological advancements in blockchain, that would affect the other usual aspects of everyone’s lives.

Fatir Malik

Electrical engineer by profession, turned into blockchain developer. Fatir contributes regularly with his insights about latest developments in fintech sector. Contact the editor at editor.opinions@blockpublisher.com

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