The question, “Is cryptocurrency legal in China?” has been tricky to answer. This is because the answer is both yes and no. However, before going into the details of the legal status of cryptocurrencies in China, we should analyze the context. The regulations on cryptocurrencies and digital assets in China are the result of a global climate of distrust towards cryptocurrencies.
Several countries are moving towards a policy of regulation. These norms to some degree tend to control the phenomenon which has emerged within the financial system. The trend of using decentralized networks to carry out financial transactions and raising capital for new ventures has been revolutionary. While this trend has decentralized the financial system to an extent, many authorities, including the Chinese are wary of some problems like the probability of fraud and scams. To protect investor interests, the authorities are looking to put regulations on cryptocurrency trading.
Cryptocurrency Regulations in China
The digital currency regulations in China are one of the most stringent among the ordinances which have been imposed by several countries. However, that does not necessarily suggest that cryptocurrencies have been declared illicit in the country. The exact legal status of the cryptocurrencies in China is discussed below.
The first point to note here is that cryptocurrencies are not recognized as legal tender in China. Till 2017, the authorities in China had imposed minimal restrictions on cryptocurrencies. A circular in 2013 even mentioned that Bitcoin was a form of virtual commodity. After 2017, mainly as a response to the soaring values of the digital assets, the authorities changed their stance.
In September 2017, seven official bodies of the Chinese government responsible for financial and cybersecurity declared ICOs as illegal. That is to say, no business operating in China is allowed to raise funds through an Initial Coin Offering. The regulators involved included The People’s Bank of China and Cyber Space Administration of China.
Moreover, ICOs based outside the Chinese territory, if they attract Chinese investments, can fall under the purview of this law. Prosecution will also follow an ICO organized by a Chinese citizen even outside the Chinese territory. Given that it is found illicit by Chinese standards.
Cryptocurrency exchanges operating in China have also been targeted under these norms. These exchanges are not allowed under this regime to provide exchange services between fiat, tokens and digital currencies. Financial service providers in China are not allowed to act as central counterparty clearing houses dealing in virtual currencies.
In fact, they are not allowed to buy or sell digital assets on behalf of their clients in any position. Exchanges are not even allowed to determine the prices of digital assets or provide any information about them. They are forbidden from carrying out all other Bitcoin-related services, like registering and settling to name a few.
The authorities even took strict measures on the mining of Bitcoins in China. The local governments were directed by the top cyber regulatory authorities to put a check on mining. They asked them to remove all preferential treatments given to mining companies. The mining companies were receiving waivers in terms of electricity prices, tax, and land. All of which are to be revoked. As a result of these measures, much of Bitcoin mining has gone out of business.
The Sovereign Currency
While China has imposed different forms of restrictions on cryptocurrencies in the private sector, the Chinese government has different plans. It is reportedly planning to issue its own digital currency. This currency which is already being tested is going to be a digital equivalent of the Yuan. The coin, if issued by the People’s Bank of China, will be one of the first state-issued crypto assets. It will also become a digital legal tender. In this sense, the strict Chinese regulations on most digital assets can be an attempt to leverage this currency.
So, Is Cryptocurrency Legal in China?
A 2018 report by the People’s Bank of China gave a clear picture of the status of cryptocurrencies in China. It delineated that about 88 crypto exchanges and 85 ICO platforms have withdrawn from the Chinese market since September 2017. The report also stated that from about 90% the Yuan for Bitcoin trade has gone down to 1%.
Such a report and all the restrictions mentioned above would indicate to the contrary, yet cryptocurrency is technically still legal. Moreover, going by the various decisions by the courts of China, we see how cryptocurrency as property is protected there.
Under contexts of contractual obligation, traditional protection to property is valid for the digital assets. Also, if the Chinese citizens are able to access foreign crypto exchanges using a VPN, they can trade in cryptocurrencies.
Conclusion: Positive View towards Blockchains
In a speech in May 2018, Xi Jinping called blockchain technology a breakthrough, as reported by CNBC. The report goes on to provide an unofficial estimate of blockchain investment between 2016 and 2018 in the country. According to it, about $3.7 billion have been invested in blockchain related projects in the country. This is in spite of the stringent regulations on cryptocurrencies.
Overall the Chinese policies do not seem to restrict the underlying technology behind cryptocurrencies. In fact, the tendency seems to be towards the centralization of the use of the technology with state authority.
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