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Expelled Communist Party official named and shamed in televised confession for supporting cryptocurrency mining

South China Morning Post 09/01/2023 Xinmei Shen

Xiao Yi, a top provincial official who was removed from his post in 2021, apologised for 'acting recklessly' in a state television programme aired on Sunday
Xiao was the most senior Chinese official to be punished for supporting cryptocurrency mining after Beijing vowed to crack down on related activities

A former government official in China's southeast Jiangxi province, who was sacked in 2021 for abusing his power to support cryptocurrency mining, apologised for being a "sinner" and causing "grave losses" to his city, in a state television news report on Sunday denouncing his wrongdoings.

Xiao Yi, former vice-chairman of the Jiangxi provincial committee of the Chinese People's Political Consultative Conference and former Communist Party chief of Fuzhou city, helped a local cryptocurrency mining company hide its activities by masquerading as a big data and cloud computing business, according to a China Central Television (CCTV) programme.

Xiao instructed Jiumu Group Genesis Technology, which he presented as an exemplar of the local digital economy, to "put up a performance" during visits and inspections by other government officials. China started to crack down on cryptocurrency mining in 2018.

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From 2017 to 2020, the firm operated 160,000 cryptocurrency mining machines, which accounted for 10 per cent of Fuzhou's total electricity consumption, according to the report.

To cover up the company's power use, Xiao asked relevant government departments to fabricate statistics and change the categories to which its usage was assigned. He also helped the firm raise 2.4 billion yuan (US$354 million) in government financing, including loans and financial guarantees, according to the state broadcaster.

The report forms the most comprehensive official account of Xiao's wrongdoings since he was removed from his post and the Communist Party in November 2021. At the time, a statement from the Central Commission for Discipline Inspection and the National Supervisory Commission, which accused Xiao of violating the country's industrial policies by helping companies engage in cryptocurrency mining activities, did not disclose any details.

That investigation also found Xiao guilty of accepting bribes and attending banquets that may have compromised the fulfilment of his duties. He was also found to have traded power for money and sex, and exploited his position to favour those close to him when promoting personnel and project contracting in exchange for property.

Mining rigs at a cryptocurrency mining farm in Nadvoitsy, Russia. Photo: Bloomberg

While cryptocurrency mining consumes a lot of power and creates large amounts of emissions and waste, the activity "contributes very little" to employment, industrial development and technological advancement, the CCTV programme said.

Cryptocurrencies could also become tools for evading regulatory scrutiny and conducting illegal transactions, thereby damaging financial security, the report added.

"I'm a sinner to the people in Fuzhou, and I have failed them," Xiao said on camera in the programme. "Because of my distorted view of political achievements ... I acted recklessly, causing such grave losses."

Xiao was the most senior Chinese official to be punished for supporting cryptocurrency mining, sending a strong signal to local cadres about Beijing's stance on the issue.

Bitcoin ATMs in Hong Kong, where cryptocurrency mining is not banned, unlike on the mainland. Photo: Bloomberg

In May 2021, the State Council's Financial Stability and Development Committee, chaired by then vice-premier Liu He, vowed to stamp out bitcoin mining.

In the months that followed, major cryptocurrency mining hubs - including Inner Mongolia, Sichuan, and Xinjiang - joined Beijing's campaign to shut down mining farms, driving many operators out of China to North America and Central Asia.

While mining activities in China plunged to zero in July 2021 after the clampdown, they quickly resumed. From September 2021 to January 2022, traffic from China accounted for about 20 per cent of bitcoin's total hash rate, according to last year's data from the Cambridge Centre for Alternative Finance (CCAF).

A large community of cryptocurrency investors continue to exist in China. Mainland users made up 8 per cent of the customer base of FTX, according to a bankruptcy filing by the global cryptocurrency exchange in November.