The implementation of blockchain frameworks targets rampant loan fraud within the Chinese financial system. China’s State Administration of Taxation and the National Financial Regulatory Administration released guidance on April 5 instructing banks to use blockchain to improve compliance in data sharing between banks and tax authorities, and increase lending services for SMEs. Commentators have said it will also improve transparency in the financial sector. “China chronically has a structural transparency problem in its financial system and its shadow banking industry,” said Roman Beck, an academic leading Bentley University’s Crypto Ledger Lab.
As China has been working for several years now on a national blockchain infrastructure, it is a logical step to dry up China’s shadow banking sector and to enforce stricter regulation in the financial market. Beck said the immediate concern for the authorities is reducing systemic risk, which also results from loans based on fabricated data and often ends up being used outside of the regulated banking system. Multiple issues around loan fraud have emerged in China in recent years.
Companies and individuals pay so-called “debt bearers” — people with good credit but low incomes — to take out loans for them. These loan applications are backed with falsified documents, showing inflated assets and income levels. The National Financial Regulatory Commission, the People’s Bank of China, and the China Securities Regulatory Commission launched a joint campaign in September 2025 to educate on the risks of acting as a financial intermediary. Additionally, as many as half of outstanding personal business loans in China may be hidden mortgage loans, according to research last year from CreditSights.
Most significantly, the decline of real estate company Evergrande came after the CSRC found that 88 per cent of the observation records — the documents created to prove that a process or physical asset within a company existed — used by PwC on the company’s projects in 2019 and 2020 were falsified, and that the auditor helped Evergrande in covering up their fraud. Evergrande was accused of inflating revenues by $78bn, before defaulting with over $300bn in debt. The transparency and efficiency of a blockchain framework can bear fruit here, said Charles Chang, director of the Fintech Research Center at China’s Fanhai International School of Finance, as it supports SMEs against a backdrop of information asymmetry. SMEs are often hindered in accessing loans by their lack of tangible assets — such as land or real estate — needed for collateral, and insufficient data.
The use of blockchain technology would provide verified evidence of the strength of a company. Chang said that the technology “allows for efficient fact-checking coupled with ultra-liquid trading and privacy-protection,” meaning that micro companies and SMEs can be evaluated based on credit models rather than the availability of collateral assets. More granular data also creates opportunities for greater use of AI, which would lead to further improvements in credit analysis, Chang said. China had previously outlined plans for the modernisation of the networks exchanging data between the public and private sectors, investing $58bn between 2025 and 2029.
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