Unlike cryptocurrency regulations in the USA, China region has a less crypto-friendly attitude towards cryptocurrency. In this article, I’ll explain how China views its crypto regulations.
In countries like the United States, cryptocurrency profits count as taxable income. The country recognizes cryptocurrency as a commodity or property. A lot of countries including China want to count cryptocurrency as a taxable asset. As per experts, the tax may fall under the ‘incidental income’ category among 11 taxation categories of China.
The profit on crypto is counted at the time the coin is sold for profit, but in China crypto trading is illegal. Today we will discuss the current scenario of cryptocurrency in China, restriction categories and regulatory measures regarding the same. We will start the discussion with some past status of the currency in China.
History of Cryptocurrency in China
PBOC or People’s Bank of China had put a ban on cryptocurrency in China in 2013. Later Bitcoin and cryptocurrency coin exchange saw this ban. China also applied a further ban on ICO and domestic cryptocurrency in 2017. However, Now, China does not promote cryptocurrency instead keep on insisting to limit its use.
In China, it is an illegal act to hold cryptocurrency or Bitcoins. Chinese can buy and sell the currencies but have to pay tax for this. The government of China has now started encouraging blockchain technology. But at the same time declared that the technology must serve the real economy of China. Before September 2017, the Chinese government banned ICO and even closed the exchange platforms at that time.
Current Scenario of Cryptocurrency Regulations in China
Cryptocurrency regulation is not recognized legal, even Chinese banks are not accepting any existing cryptocurrency and banned the currency. On September 4, 2017, the central government regulators that were the 7 popular Chinese banks, the People’s Bank of China, the State Administration for Industry and Commerce, the Cyberspace Administration of China, the Ministry of Industry and Information technology, the China Securities Regulatory Commission and The China Banking Regulatory Commission along with the China Insurance Regulatory Commission jointly announced prevention for financial risks from ICO or (Initial Coin Offerings) just for the sake of investor’s protection from the financial risk.
As per the regulation, ICOs that raise cryptocurrency through irregular sales without any official authorization is completely illegal. As per ICO rules, any ICO may include illegal token issuance or fundraising, pyramid selling or financial fraud. Cryptocurrencies do not have equal legal status as fiat currency. As a result, they cannot be circulated and used as market currency. So, what are the different restrictions or limitations the Chinese have?
Cryptocurrency Platform Restrictions
ICO has also imposed restrictions on cryptocurrency trading platforms. As per the rules these platforms cannot convert legal tender into cryptocurrency or vice versa. They are also not allowed to purchase or sell cryptocurrency or set the price of cryptocurrencies nor advised to provide other agent services. If the government notices any such activity, then Government authorities will remove the sites or application from the platforms or even suspend their business license as well.
Bitcoin Mining an Illegal Activity
In January 2018, the leading group of China requested the government to remove all existing policies that favor Bitcoin miners favoring land use, electricity price, taxes, and other reasons. They suggested that the miners should submit regular reports of Bitcoin mining operations. Since then the restrictions on Bitcoin miners were strong in some Chinese provinces. Even many miners have stopped operating Bitcoin mining activities.
Financial Institutions Prohibitions
Any financial institutions and non-bank payment institutions cannot provide direct or in-direct service to the cryptocurrency or any ICO. The restricted services include opening bank accounts, trading, liquidation or clearing including registration. They can also not provide any insurance service related to cryptocurrency or ICO. This ban on restricted services has been in place since 2013.
Access to Overseas Exchange
As a further prevention Chinese government has also blocked internet access to some overseas exchange websites. As per the rule, no person can use the internet to view information that is against their laws and regulations.
Even if someone tries to access the information over a VPN, then again he or she can face risk if the link contains any prohibited information. In view of such harsh policies in China for Bitcoin users, it may be illegal to trade or hold Bitcoin currency through any channel in the future. However, before anticipating the crypto future in the country, let us understand the present crypto laws in China.
China’s First Crypto Law
China passed a new crypto law in October 2019. This law is the first step of the Chinese Government towards Blockchain Adoption. The law aims to set standards for the application of cryptography and the management of passwords.
As you can see, there are not many crypto-related laws in China. However, the country has a plan for crypto laws in the coming future.
Future of Bitcoin and Crypto in China
Despite such a ban on ICO and cryptocurrency exchanges, the Chinese government agencies have also shown enthusiasm and interest in blockchain technology. Their aim for this is to modernize China’s financial system so that it can become a world leader in this newly invented technology. However, their ultimate goal of technology promotion is to seek better service for their real economy.
Blockchain Adoption Created Frenzy In Crypto Market
In January 2018 a memo of PBOC was leaked. As per the memo, soon the Bitcoin mining operations will be banned in the country. Also, the miners were held responsible for energy resource consumption and stroke of financial speculation. However, As per recent news of the economic times, Chinese President Xi Jinping asked Chinese to accelerate blockchain technology, which is the backbone of many cryptocurrencies including bitcoin. As a result, the firms engaged in blockchain development have increased their business speed and enhanced the shares.
China – A Pioneer in Digital Currency
China follows the national cryptography law, established in October. Implementing the encryption regulations, The People’s Bank of China is preparing to make China the first large country to mint its own digital currency. This virtual yuan will depend on blockchain technology to prevent fraud, and the continued development of blockchain demands advances in encryption.
China is taking small but measured steps towards regulating crypto. As of now, I have listed the current and planned laws. I’ll keep on updating the list as & when any updates occur. Follow this space on Facebook & Twitter for further updates.