After expressing worries about the financial risks that come with non-fungible tokens, some of China’s government officials are now giving advice on how to best use the new technology.

In the city’s 14th Five Year Plan on the digital economy, which came out this week, the government says it wants “leading companies to explore building NFT exchanges.”

Even though the directive isn’t for the whole country, what is tried in Shanghai, China’s largest city by GDP and known for its open economy, can probably be used as a model in other areas.

The government’s goal for NFTs is clear: to use them as a way to protect intellectual property (IP), which is still not well protected in the country. In fact, the plan says that the city should get a head start on researching and promoting “the digitization of assets like NFTs, the global circulation of digital intellectual property, and the digital authentication of ownership.”

On the other hand, the Chinese government has been very clear about how they feel about speculative NFTs. In April, the top financial industry groups in China said that NFTs shouldn’t be used for securitization and shouldn’t be traded with cryptocurrencies, which are illegal in China.

With these ideas, there is no way that global NFT markets like OpenSea in China could exist. What the country does allow, though, are private blockchains that are run by trusted institutions as part of a group. Tech giants like Tencent, Alibaba, and Baidu have all built their own marketplaces for “digital collectibles.” This is a term used by some in China to downplay the negative financial connotation of NFTs. Consumers can only buy things with the country’s fiat currency and can’t trade them with other people.

In Shanghai’s plan for the digital economy, there is a lot of talk about blockchain, the distributed ledger technology that supports NFTs and cryptocurrencies. We’d expect that. China has welcomed blockchain with open arms over the years, and President Xi Jinping has backed the technology himself.

For one thing, the document calls blockchain a “key technology.” This puts it in the same category as AI, cloud computing, and big data, all of which have been getting a lot of help from the government.

AI, big data, and other new technologies should be “deeply merged” with blockchain to “empower” fintech applications. For example, distributed ledgers and smart contracts could be used to make end-to-end payment transactions possible. The document says that blockchain can also be used to verify identities and make sure that transactions can be trusted.

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