Preface

In recent years, as the economy has entered a downward channel, global investment and financing have also begun to tighten.

Taking Southeast Asia, a hot spot for overseas investment, as an example, the number and amount of financing transactions in Southeast Asia dropped to a six-year low in 2023, and 88% of investors felt that they were facing a more challenging exit environment.

Under such circumstances, an increasing number of Chinese manufacturing companies expanding overseas are beginning to face a perplexing problem—how to solve funding issues abroad?

In the past two years, China’s new energy vehicles going overseas has become a topic of national concern. But what few people know is that many Chinese car companies have previously started the process of overseas expansion. However, due to financial difficulties overseas, they regrettably went bankrupt. Finoba, a German subsidiary of SINOMACH, is a regrettable example.

In June 2016, China Automotive Industry Engineering Co., Ltd., a subsidiary of Sinomach Automobile, established its wholly-owned subsidiary Finoba Bavaria (“Finoba Company”) in Germany to start its overseas development journey.

Finoba’s main business is the design and manufacturing of production lines for European automobile OEMs, as well as the marketing and execution of general contracting projects. It once undertook and bid for engineering projects for Daimler, Volkswagen, Opel, Tesla and other car companies. Bidding means that a large amount of project reserve funds are required. However, under the global epidemic, major European automobile factories have completely suspended production, and the business of supporting parts manufacturers has also begun to stagnate, causing Finoba’s financial liquidity to face tremendous pressure. However, due to the serious shortage of financial services provided by Chinese financial institutions for overseas financing of overseas enterprises, and the lack of understanding by overseas banks of the actual business conditions of overseas entities of overseas enterprises and the financial strength of domestic entities, they will be hesitant to grant credit. Making financing for Finoba very difficult.

In September 2020, the overwhelmed Finoba finally entered bankruptcy proceedings. To this day, this bankruptcy matter is still being processed.

In fact, Finoba is not an isolated case. This is a common challenge faced by all companies expanding overseas—in the context of global financing becoming more difficult, how can Chinese companies in “foreign lands” resolve their funding predicaments?

In the past, only a small number of overseas companies could complete overseas financing through local bank loans and VC support. Today, another way has opened up for corporate financing – RWA, Real World Assets.

On August 23, A-share listed company LongShine Technology cooperated with Ant Group’s digital technology arm to complete China’s first RWA based on new energy physical assets in Hong Kong, amounting to approximately 100 million yuan.

This complex statement can be explained in another way: LongShine Technology raised 100 million yuan through the RWA issued by Ant Group’s digital technology arm.

Though small in scale, this event is of great significance. It means that even across regions and national borders, traditional enterprises can still achieve remote credit granting and financing through digital assets corresponding to physical assets, “proving their own value”.

01. There is a new solution to the problem that gives enterprises a headache

Many traditional companies will face a fatal problem - excessive asset investment, causing the company to often suffer from cash flow pressure.

Take the booming new energy industry as an example: operating charging stations for new energy vehicles is undoubtedly a capital-intensive business.

LongShine Technology is a major domestic energy internet company. Its subsidiary, XinDianTu, covers over 90% of China’s operational public charging service networks, aggregating more than 100,000 charging stations and 1.3 million charging devices across over 400 cities nationwide.

However, behind this vast charging network lies the operators’ substantial financial investment.

The situation reflected on LongShine’s XinDianTu platform is just a microcosm of the industry. Data shows that currently, 85% of public charging services in China are provided by private enterprises. Over 82% of operators own less than 10 charging stations, and more than 50% of operators have invested less than 1 million yuan overall.

These operators primarily focus on localized operational services, making it easier to acquire local resources and establish stable service partnerships with surrounding resources. However, compared to leading operators, they still face challenges in financing channels. Many of them have substantial financing needs that have yet to find suitable solutions.

In reality, their predicament lies in the fact that despite having significant asset investments, these assets neither enable them to easily secure bank loans nor attract venture capital attention.

A new financing method is changing this situation.

Recently, Ant Group’s digital technology arm collaborated with LongShine Technology to complete China’s first RWA (Real World Asset) financing based on new energy physical assets in Hong Kong, raising approximately 100 million yuan.

The principle is not complicated. LongShine’s XinDianTu uses some of the charging piles on its platform as RWA anchor assets. Through the integration of blockchain technology from Ant Chain (under Ant Group) and IoT technology, each digital asset represents a portion of the revenue rights of the corresponding charging pile. This product was issued in cooperation between Ant Group’s digital technology arm and UBS (Hong Kong), signifying a substantial step forward for Ant Chain in promoting the development of the Web3 industry.

Industry insiders believe that this innovative financing method of trusted on-chain new energy RWA provides a unique financing channel with broad development prospects for new energy asset investors and operators. It also offers a new investment channel for global investors to invest in Chinese new energy assets. If this initial case can be replicated on a larger scale, LongShine’s XinDianTu will use this RWA model to help numerous small and medium-sized energy storage and charging pile operators activate their existing high-quality assets, enhance the liquidity of heavy assets, form a virtuous investment and financing cycle, and truly realize technology empowerment of physical assets.

02. The mysterious RWA: This is another kind of IPO

What is the mysterious RWA?

RWA, or Real World Asset tokenization, refers to a form of ownership stored digitally (as tokens) on the blockchain for trading purposes, similar to an “IPO” in the digital world.

Simply put, it uses technological means to digitize physical assets, mapping them one-to-one onto the blockchain for storage and subsequent trading. The primary technology used is blockchain, along with other technologies such as the Internet of Things (IoT), privacy computing, and artificial intelligence.

Ant Chain supports the “on-chain” process of physical assets, using blockchain technology to ensure asset security, transparency, and immutability. This innovative approach greatly improves the efficiency of asset management and risk control capabilities, while creating a clear and trustworthy green investment environment for investors. Specifically, the combination of blockchain, IoT, and AI technologies can provide transparent and traceable data records, thereby enhancing financial institutions’ trust in enterprises and reducing financing risks.

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Compared to the difficulties in confirming ownership and trading physical assets, RWA leverages the interoperability of global blockchain networks to bring more liquidity to real assets and reduce the cost of asset financing.

Ant Group’s digital technology arm began exploring blockchain technology as early as 2015, making it one of the earliest companies in China to invest in long-term research and development of this technology and promote industry integration.

In June 2021, Ant Chain officially launched its blockchain module (MaaS), taking an important step towards empowering trusted industry digitalization. The MaaS module serves as a “connector” between the physical and digital worlds, enabling “power-on to chain” functionality. Through a trusted root based on unique device characteristics, electronic devices can automatically connect to the blockchain, enabling trusted on-chain IoT data and full-process encryption.

In September 2023, Ant Chain’s Web3 brand ZAN was launched at the Bund Summit. ZAN caters to Hong Kong and overseas markets, providing Web3-oriented technical solutions such as node services, digital identity verification (eKYC), and transaction risk control (KYT), with a focus on security and compliance technology products.

Prior to this, Ant Chain’s trusted on-chain technology had been widely applied in new energy fields such as new energy vehicles, batteries, and photovoltaic panels, with the cumulative number of on-chain devices exceeding 12 million.

Apart from LongShine Technology, another example of Ant Chain’s application is Dudu Battery Swap. This is a two-wheeler battery swap enterprise that mainly provides “battery swap” services to community residents, with swap stations set up in residential areas or at electric vehicle parking spots on streets. Currently, Dudu Battery Swap has deployed over 5,000 battery swap cabinets in places like Shenzhen and Hangzhou, with total registered users exceeding 130,000.

However, the core of developing a battery swap business is buying batteries and then renting them out. If we assume a unit price of 1,000 yuan per battery, 200,000 users would require 200 million yuan worth of battery assets. For a startup company, this kind of financial pressure would severely constrain business development. After collaborating with Ant Chain, Dudu Battery Swap used “on-chain batteries” in financing scenarios. They record data from the battery’s BMS (Battery Management System) - including each battery cell’s charge, voltage, charge-discharge cycles, battery health, etc. - on the blockchain, ensuring the data source is trustworthy and tamper-proof. Moreover, when batteries need to be recycled, they can be better priced based on the health of the battery cells, thereby realizing value appreciation.

Blockchain has activated the value of technological assets such as batteries, providing a new approach to solving the trust issues between financial institutions and tech-innovative enterprises. Leveraging the on-chain battery data, Dudu Battery Swap obtained a 20 million yuan operating lease loan credit, with the comprehensive financing rate dropping from the previous 10% to 6%, significantly reducing financing costs.

03. Is RWA becoming the new dark horse on the web3 track?

It’s no coincidence that LongShine Technology and Ant Digital Technology’s first RWA issuance was able to land in Hong Kong. In fact, Hong Kong has a very deep Web3 foundation.

Since the Hong Kong Financial Secretary released the “Policy Statement on Development of Virtual Assets in Hong Kong,” the Hong Kong government has been vigorously promoting the development of Web3 in the region. In February 2023, the Hong Kong government successfully issued HK$800 million worth of tokenized green bonds, which is a typical RWA tokenization project.

On April 11, 2023, the Hong Kong Web3 Association was established. At the ceremony, Hong Kong SAR Chief Executive John Lee expressed his expectations for Hong Kong’s Web3 development in his speech and emphasized the SAR government’s open attitude and firm determination in the development of virtual assets.

Subsequently, on June 1, 2023, the Hong Kong Securities and Futures Commission officially implemented new regulatory provisions for virtual asset trading platforms. The implementation of the new regulations not only enhanced the compliance of virtual asset trading but also laid the foundation for Hong Kong’s development in the Web3 and virtual asset ecosystem. This also marks an important milestone in the development of RWA in Hong Kong.

From another perspective, RWA is a bridge connecting the physical world and the digital world, which is an important component of Web3 that Hong Kong has been vigorously developing in recent years.

In May this year, the Hong Kong Monetary Authority announced the list of the first batch of architecture working groups for the wholesale Central Bank Digital Currency (wCBDC) project Ensemble, promoting the establishment of industry standards to support interoperability between wCBDC, tokenized currencies, and tokenized assets. The group members not only include multinational banks such as Bank of China (Hong Kong), Hang Seng Bank, HSBC, and Standard Chartered Hong Kong, but also ZAN, a subsidiary of Ant Digital Technology, which joined as a technology company to provide tokenized deposit technical solutions and participate in tokenized asset scenario innovation.

Just yesterday (August 28), the Hong Kong Monetary Authority hosted the launch ceremony for Project Ensemble (sandbox) and introduced four main themes for the first round of experiments on asset tokenization use cases. This marks a significant step forward in the practical application of tokenization in the financial sector.

In fact, as a strategic platform for mainland enterprises to “go global,” Hong Kong serves as a “super connector” linking mainland enterprises with overseas investors. The issuance of the first RWA in Hong Kong can effectively help mainland enterprises obtain development funds in the global capital market, expand their business, and consolidate Hong Kong’s differentiated advantages compared to other financial centers.

This year, the development of RWA has also entered the fast lane.

In 2024, several major financial institutions made their first strategic moves in the RWA field.

The BlackRock USD Institutional Digital Liquidity Fund (BUIDL), a tokenized fund based on the Ethereum network, was launched on March 20, 2024. The BUIDL fund, composed of cash, US Treasury bonds, and repurchase agreements, aims to provide qualified investors with opportunities to earn USD returns through blockchain technology. By July this year, BUIDL had grown to become the largest tokenized Treasury fund, managing assets exceeding $500 million.

Earlier, Goldman Sachs launched a digital asset platform and introduced three new tokenized products this year; Siemens also issued 60 million euros worth of digital bonds on the blockchain; financial giants such as HSBC, JPMorgan Chase, and Citigroup have all been exploring tokenized Treasury bonds.

Citibank released a research report in March 2023, comprehensively analyzing the path for Web3 to achieve one billion users and digital assets to reach tens of trillions of dollars in scale. According to their prediction, by 2030, $4-5 trillion worth of assets will be tokenized, while blockchain-based trade finance transactions will reach $1 trillion.

RWA may bring some unprecedented changes to Chinese enterprises going global.

Nowadays, Chinese enterprises going global have transformed from past product exports to manufacturing overseas and brand globalization. This means that Chinese enterprises need to penetrate deeper into overseas markets and take root locally. This inevitably faces demands for overseas investment and financing. However, the supporting overseas financing services are relatively lagging, making overseas financing difficult and expensive, which has become one of the main problems restricting the development of overseas Chinese-funded enterprises.

According to OCEES data, apart from relying on the parent company, applying for loans from domestic or host country banks and financial institutions is the main financing method for overseas Chinese-funded enterprises. However, if there are no clear collaterals or credit assets recognized by local financial institutions, overseas enterprises cannot obtain bank loans.

RWA can solve this dilemma through the tokenization of physical assets. LongShine Technology’s new energy RWA project is an example of Ant Digital Technology’s unique value for going global, which has greater imagination in the new wave of Chinese enterprise globalization, solving many practical funding problems.

From the past when Ant Chain and its partners built the world’s largest new energy equipment blockchain platform, to now completing the last link of financing, it means that this model has achieved a closed loop. As more and more new energy companies join in the future, new energy RWA will push the industrial Web3 to enter a turning point of serving real enterprises.

After RWA opens up the tokenization of physical assets, the digital asset flow of the physical industry will also complete the last mile - digitalizing physical assets and realizing expected returns in real-time. This is also the turning point in the digital era, where the digitalization of the physical industry moves from improving productivity to reconstructing production relations.

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1. This article is reproduced from [Xiaguangshe], the original title is “Redefining IPO with Real-World Assets (RWA)” The copyright belongs to the original author [Liu Yu]. If you have any objections to the reprint, please contactGate Learn Team, the team will handle it as soon as possible according to relevant procedures.

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