Crypto Regulations In China 2024

China was once considered the capital of Bitcoin trading and mining. The country’s leadership struggled for several years to find ways to regulate cryptocurrency and keep it from devaluing and replacing its fiat currency. China’s government banned non-government-approved cryptocurrencies in September 2021. It has a strict stance on cryptocurrencies because its government believes it will destabilize its currency at a time when it is working on expanding its economy. It has weighed creating its own CBDC and is participating in cryptocurrency regulatory development efforts

In this report by Coinpedia, we have compiled all the events which are related to crypto regulation and framework in China in 2024. Let us dive in!

Crypto Regulations In 2024

China was one of the first countries where people readily embraced cryptocurrency. The first crypto exchange BTC China opened in 2011. Let us look at the history of crypto in China and how virtual currencies are regulated in China.

• In December 2013, the People’s Bank of China (PBOC) and four other authorities jointly released the Circular on the Prevention of Risks from Bitcoin making it compulsory for all financial institutions to refrain from conducting Bitcoin-based business.
• In September 2017, the PBOC and other authorities issued an Announcement on Preventing Initial Coin Offering Risks, which highlighted that the Initial coins or virtual currencies will not possess legal status as official currencies and cannot be used as currency in the market. It prohibits all forms of initial coin offering activities and exchange services for token financing and trading platforms. Following the 2017 ban, Binance was forced to transition outside of China.
• In September 2021, the PBOC and nine other central authorities released the Circular on Further Preventing and Resolving the Risks of Speculation in Virtual Currency Trading (Circular 237). It is a significant regulatory document that aims to work on China’s approach to managing the risks related to virtual currencies. There are key provisions under Circular 237, which include:

1. Emphasis on the illegality of virtual currency-related activities. It states that virtual currencies do not possess legal status as official currencies in China. It declares that virtual currency-related business activities are illegal!
2. The Circular also targets offshore virtual currency exchanges that provide services to Chinese residents. The authorities were asked to block them and punish all those who were involved.
3. It explicitly asked financial institutions and payment service providers to prohibit from offering any services related to virtual currency transactions.
4. It talked of enhanced supervision and monitoring of virtual currency trading and speculation.

• In September 2021, the National Development and Reform Commission issued the Circular on Regulating Virtual Currency Mining activities.
• The People’s Bank of China (PBC) intensified its examination of crypto assets in its recent Financial Stability Report for 2023. The report highlights the rapid growth of the global crypto market and emphasizes the importance of consistent oversight as well as crypto regulation across the world. It calls for uniform regulation across the board, stating: “same business, same risks, same supervision.”

Taxation

As the status of cryptocurrencies is clearly spelt as “illegal”, there is no such tax regime in place for crypto taxation in China!

Legal Status Overview

Let us have a look at these major activities and their legalities in China! Considering that the government does not have a friendly stance towards the virtual currency world, here’s what is legal/ illegal:

Bitcoin	Illegal
Trading	Illegal
DeFi	Illegal
Mining	Illegal
NFTs	Illegal

Future Prospects and Challenges

China made it clear in 2017 that it does not support cryptocurrency! The authorities here consider digital currencies more harmful than useful. From Beijing’s point of view, crypto empowers non-state players in the financial system and increases risks. However, rumour has it that China will soon ease out on crypto. In January 2024, Shanghai Municipal Tax Service published an article online that explained levies imposed on digital currency transactions in China. The article was taken down later. Before it was deleted, it spurred rumours that China was preparing to work on a crypto ban! 

While China has denied legal-tender status for crypto, it has not yet outlawed its attribution as a property or a commodity, as per Jin Jianzhi of the Shanghai Mankun law firm. While one cannot rule out some form of crypto liberalization in future in mainland China, it remains unlikely for the near and medium terms due to Beijing’s take on crypto!

Conclusion

China has attained an impressive level of financial inclusion in a short period of time by using government-approved digital financial technology. The introduction of the digital renminbi represents another move by the Chinese state to assert control over a fast-digitizing financial and monetary system. Given the significant investment the Chinese government has made in the digital yuan, it is unlikely to welcome decentralized counterparts anytime soon.

Finally, under the ‘one-country, two-systems’ model of governance, Hong Kong’s financial system is very different from the mainland’s. It is much more aligned with the broader global financial system. There is no expectation that the mainland and Hong Kong financial systems will converge!