It was easy for Sunny Zhang, who runs a Web 3.0 startup, to do business before Covid-19 shut down Shanghai, a national economic powerhouse where companies exploring the third generation of the internet congregated.
Venture capital firms, supply chain partners and many non-fungible token (NFT) projects were just some of the types of Web3 firms commonly found there. But the lockdown, which started in March and lasted two months, had made things too difficult for many entrepreneurs.
“The recent Shanghai lockdowns have got many in the industry thinking if they should move overseas because the domestic [business] environment wasn’t the best,” Zhang, head of growth at Hogwarts Labs, a Shanghai-based company that runs NFT social network ShowMe, told Forkast.
Zhang said the company, whose network has over 50,000 users, plans to set up a new office in Singapore later this year. ShowMe, which has about two dozen staff members, will be leaving China over a period of time, it said without specifying a time frame.
For decades, Singapore has prided itself on being one of the world’s most open economies. Last year, out of its 5.45 million population, just under 2 million were not local citizens, according to official data.
Its low taxes, ambition to become a crypto hub and its majority ethnic Chinese population are factors welcomed by China’s Web3 businesses seeking a new base.
“It’s a hard decision to make. We’ve built strong roots in Beijing and Shanghai,” she said. “But there’s no other way. Singapore appears to have the best [Web3] business environment, and for the sake of our long-term development, we just have to go there.”
“Singapore offers a balanced regulatory approach toward the crypto industry and is a leader in this space in Asia,” Maximilian Santner, head of business development of Hogwarts Labs, told Forkast, adding that the company plans to build up its presence in Singapore this year and focus on the Southeast Asia region.
Hogwarts Labs isn’t alone. Cobo, a crypto custody and asset management company, moved its headquarters from Beijing to Singapore last year. Industry players and analysts say the trend is set to continue.
Over the past few years, Chinese crypto-related companies have made their way to Singapore and have formed a community there. Cryptocurrencies were banned in China last September, but companies working in Web3, including decentralized finance (DeFi) and NFTs, are not banned outright in the country.
Still, the trend of Chinese crypto exchanges and other companies moving to Singapore has made it easier for Web3 to go too, according to Zhang.
For Chinese businesses, guanxi — a culture of trading favors and leveraging relationships — still plays an important role, meaning in-person interactions remain crucial.
“It’s hard to get first-hand or early information about our business partners if we only interact online,” Zhang added. “That could restrict the early development of a project.”
Dean Peng, vice president of Metalpha — a Singapore-based digital asset management platform backed by Antpool, a mining pool affiliated with Chinese mining rig giant Bitmain — told Forkast that it’s easy to find Chinese Web3 companies in Singapore.
“The social circle is relatively small in Singapore, and offline networking can lead to many business opportunities,” he said. “We’ve been here for over half a year, and we’ve been connected to many Chinese companies that have moved here for a while or those that set up and developed a new company here.”
Before Covid hit Shanghai in early 2022, many Chinese Web3 companies were already considering moving to Singapore, and the lockdowns probably “fueled their pace of doing so,” said Peng, who previously worked at crypto exchange OKX and built out its platform in China in 2016.
Tina Cheng, managing partner of global venture capital firm Cherubic Ventures, said she could see how the Shanghai lockdown could be damaging for entrepreneurs.
“I imagine for a founder trying to build their business, it can be very restrictive,” she said.
During and after the lockdown, there were reports of a mass exodus of expatriates and finance professionals from the city.
But not all Chinese Web3 firms are looking to leave. Companies that build blockchain infrastructure are likely to stay, as Beijing has voiced support for such initiatives. In March 2021, the word “blockchain” was written for the first time into China’s 14th five-year plan covering 2021 to 2025.
Still, Metalpha’s Peng said it was probably a good time for many Chinese Web3 firms to make a relocation decision, adding: “The earlier you move, the merrier.”
“Many companies already have offices in Singapore but they just haven’t decided to move out the core team,” he said. “But now it’s a good time.”
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