The most visible outcome of President Xi Jinping’s speech in 2020 will likely be local governments setting up funds to invest in local blockchain businesses, McKinsey stated in its latest commentary.

Despite an inevitable growing separation between the US and China in technology sectors, the global strategic consulting firm considers the technology tensions between the two largest economies as a likely tipping point. It follows factories moving out of China and manufacturers consolidating in China to double down on technology in their remaining factories.

“Indeed, China is rapidly becoming the world center for the Internet of Things in factories,” the McKinsey commentary states. “These trends preceded the US tariffs and have only been marginally accelerated by them. More non-Chinese companies than Chinese are shutting down factories in China, but not all move production out of China as they close. A good number outsource their manufacturing to a Chinese-owned company producing in China, believing that the Chinese company will be lower cost than the foreign-owned factory, and just as good quality.”

It adds that one of the few business-focused outcomes from the recent fourth Plenum were plans to establish a “new national system for making breakthroughs in core technologies under socialist market economy conditions.” With China turning its cities into large-scale pilots for 5G-enabled smart cities at a pace that will allow it to set de facto standards especially as their products will not be accepted in the US, the gap between high performers and laggards widened further with leaders raising capital expenditures 20%+ over last year as they double down on deploying robotics, IoT, blockchain, and other productivity enablers in their supply chain.

It could be recalled that blockchain was also topical at the fourth Plenum where President Xi called for China to “take the blockchain as an important breakthrough for independent innovation of core technologies.” Ever since the Asian giant has been seeking to give the main direction for the global focus on the development of blockchain technology and garner interest with its proposed digital currency project.

“The government is determined not to fall as far behind in regulating emerging blockchain based industries as it did in the early years of the Internet,” the commentary states. “The strategy of just launching a business and begging forgiveness later will not be tolerated. Regulatory priorities are not to enable unfettered innovation, rather they are to ensure social stability and centralized control.”

It adds that some of China’s specific priorities include the application of blockchain at scale in supply chain and quality control for cost reduction and to avoid dependence on the US for any aspect of blockchain technologies.

Aside technology, it says the US and China have embraced growing separation in other areas and predicts, as it was last year, further separation in 2020 in economies with investment flows, supply chain, data flows, people flows, technology procurement, standards.