Crypto Regulation in China
The People’s Bank of China90 banned financial institutions from dealing in cryptocurrencies in 2013 and later expanded the ban to cover crypto exchanges and ICOs. China was the epicenter for mining because of low electricity costs. At its peak, it was estimated that more than 65% of bitcoin mining was taking place in China.
The government considered a ban on crypto mining, but in 2019 reconfirmed that it would remain legal. In May 2021, China’s Financial Stability and Development Committee, the financial regulatory agency under Vice-Premier Liu He, said the Chinese government would “crackdown on bitcoin mining and trading behavior, and resolutely prevent the transfer of individual risks to the society.”
Source: Thomson Reuters
On Dec. 31, 2022, the Chinese government published a draft regulation that stated that no individual or organization is permitted to use internet marketing for illegal financial transactions, including cryptocurrency transactions.
Source: SEO Agency China
China’s cryptocurrency regulation means that they do not consider cryptocurrencies to be legal tender and the country has a global reputation for strict currency control regulations on the majority of foreign currencies, including cryptocurrencies. Under a 2020 amendment to China’s Civil Code, the government ruled that state-approved cryptocurrencies had the status of property for the purposes of determining inheritances.
Source: Comply Advantage
On September 24, 2021, 10 government authorities, including the People’s Bank of China (PBOC), jointly issued a notice to clarify that cryptocurrency is not a legal tender. Further, all cryptocurrency transactions in China are considered illegal, including offshore exchanges to provide services to Chinese citizens. The authorities stated that China-based employees of offshore crypto exchanges or any companies providing services to them will be investigated and prosecuted.
Source: China Briefing
China does not recognize cryptocurrency as a legal tender and the banking system is not accepting cryptocurrency or provide relevant services. Since 2013, the government has issued regulations aimed at restricting the trade of cryptocurrency and any activities related to virtual currency in an effort to improve investor protection and financial risk prevention. Domestic cryptocurrency platforms and initial coin offerings (ICO) have been banned and events related to cryptocurrency or ICO have been discouraged.
Source: Ecovis
China has become the first major economy to impose a blanket cryptocurrency ban. The impact of this development is likely to be far-reaching given the size of China’s economy, its economic interconnectivity with the global economy, and its transformation into a global leader in technology and innovation. This article shows that China has waged an all-out war on cryptocurrencies, banning almost all forms of crypto transactions and investments, as well as the crypto exchanges and platforms that facilitate them. Criminal liability can be imposed on violations of these bans. Investments in crypto assets are now at risk of venturing into legal limbo, as they can be ruled null and void by the Chinese courts on the ground that such investments constitute violations of public order. By also exerting extra-territorial jurisdiction over offshore crypto exchanges, China has erected a legal “great wall,” insulating its residents from the perceived risks associated with investing in crypto assets.
China’s policy stance is driven by both global and endogenous concerns: Global in that the decentralized, anonymous and cross-border nature of crypto assets facilitates their use for illicit purposes, presenting a common set of regulatory challenges that national authorities and international standard setters are scrambling to understand and address. Endogenous in that China’s policy reactions to these common challenges must also be understood in light of certain attributes of its national conditions. Those attributes include, most importantly, China’s long-established and well-entrenched capital control regime and the ambition of its centralized digital currency project, in which observers see significant geopolitical implications. It is in this context that the debate over the proportionality and regulatory cost (in terms of innovation) of China’s approach should be placed.
Source: Papers SSRN
In terms of paying taxes on income originating from cryptocurrency trading, the Official Reply of the State Administration of Taxation on Issues regarding Levy of Individual Income Tax on Individual Income Derived by Individuals from Virtual Currency Trading over the Internet (“Official Reply”) addresses relevant requirements.
According to the Official Reply, the income derived by individuals by purchasing virtual currency from game players and then selling it to others at a mark-up shall be the taxable income for individual income tax, which shall be computed and paid under the item of “property transfer income”.
The original price of the virtual currency sold by individuals shall be equal to the price for purchasing that virtual currency over the Internet plus the relevant tax and fee.
Where an individual fails to provide proof of original price, the competent tax authorities shall determine the original price of the virtual currency.
Source: Ecovis
Crypto regulations in the country have continued to evolve in recent years. In May 2021, China announced that it had prohibited all institutions from accepting or using virtual currencies for payment or settlement. Nor can institutions facilitate the exchange of cryptocurrencies for yuan or other foreign currencies. China’s digital yuan, the currency in development at the moment, is not included in this prohibition.
As a result of this regulation, banks and other payment processors will be forced to discontinue their crypto services. Investors should be aware that there is no ban on owning cryptocurrency in China. However, the country’s authorities believe that the prices of cryptocurrencies can be easily manipulated, making them a dangerous commodity to trade. Therefore, China has continued to crack down on such transactions.
Source: Crystal Blockchain
Almost all Chinese crypto exchanges have moved their bases overseas in recent years, after regulators banned Bitcoin exchange’s regulatory actions in September 2017.
The Global Times reported earlier that more than 20 major firms involving cryptocurrency businesses, including trading exchanges, crypto mining, and crypto information platforms such as Huobi and Ethereum mining pool Sparkpool, have suspended services to Chinese mainland users and announced plans to exit the market.
Their exits mean that more than 90 percent of crypto-related businesses have shut down in China, industry observers said.
Source: Global Times
There’s no indication that China’s cryptocurrency regulations intend to lift or loosen their ban on cryptocurrencies anytime soon but recent developments suggest that the government intends to position the country as a leader in the crypto space. Those developments include statements by Chinese government officials endorsing blockchain technology, the extensive trial and testing of the central bank’s digital currency (the digital yuan), a joint venture with SWIFT (the international payment and cross-border payment gateway), and the continued status of crypto mining within China. While a timeline is still undefined, China’s central bank has been working on introducing an official digital currency since 2012, with efforts accelerating after Facebook’s announcement of its plans to introduce its own currency, Diem (formerly Libra). To this end, in late 2020, the Chinese government drafted a law that conferred legal status on PBOC’s digital Yuan: the legislation is expected to result in the demise of the fiat currency, and the introduction of bespoke currency controls covering exchanges and currency fungibility.
According to a report published by the Institute of International Finance, the Chinese government has also expressed support for the implementation of a global regulatory framework for cryptocurrencies.
Source: Comply Advantage
Recently, the Ministry of Public Security from China as released a list of the top five sources of online fraud. They are as follows-
- Brushing
- False Investment
- Money Management
- Dodgy loan scheme
- Impersonation of customer service
Chinese Ministry of Public Security has warned citizens not to fall for these online scams following with month-long anti-fraud campaign.
Source: Business Insider
China’s top law enforcement agencies are investigating crypto trading exchanges and mining activities, and exploring specific ways to convict and sentence those involved in illegal activities, according to media reports on Tuesday, following the country’s broad and strict ban on crypto transactions in September.
Caijing Magazine quoted sources close to the matter as saying in a report that after the investigation is completed, further legal explanations will be issued by the Supreme People’s Court and the Supreme People’s Procuratorate at a “proper time.”
Source: Global Times
China’s regulatory sandbox has now expanded to a new city as the country seeks to promote the growth of emerging technologies. The city of Chengdu joins Beijing, Shanghai, Shenzhen, and more in creating an enabling environment for blockchain, artificial intelligence, big data, and more.
Chengdu, the capital of Sichuan province, became the latest city to join the sandbox operated by the People’s Bank of China. It now becomes the ninth city where the PBoC is operating its sandbox in. The first was Beijing, where the regulator launched the fintech innovation supervision pilot in December 2019. Since then, Shenzhen, Shanghai, Guangzhou, Suzhou, Chongqing, Hangzhou, and Xiong’an New Area have joined.
By joining the sandbox, Chengdu will foster the growth of emerging technologies in the city. As per a report by a local outlet, the sandbox will focus on the integration of these technologies in the financial services industry. The PBoC believes that this can drive efficiency in the industry and allow the service providers to improve the quality of service delivery and cut costs.
Source: Coingeek
The southern Chinese city of Guangzhou has joined Beijing, Shanghai, and Shenzhen in boosting local fintech innovations by introducing a sandbox program that allows stock exchanges, as well as securities and futures companies to experiment with new technology initiatives, according to a plan unveiled by local authorities this week.
The plan is aimed at building a “prudent and tolerant” regulatory environment and facilitating the “digitization of the capital market”, according to a notice published by the Guangzhou Municipal Local Financial Supervision and Administration. The project has received the blessing of the China Securities Regulatory Commission (CSRC), officials said.
Guangzhou’s move is part of a rising trend in China that has seen local governments and licensed financial institutions pushing the use of fintech, after Beijing rooted out businesses that it deemed harmful, such as peer-to-peer lending and crypto exchanges.
Source: SCMP
