Cryptocurrency laws and regulations in China

Cryptocurrency-related activities have received little tolerance from the Chinese government. Initial coin offerings (ICO) were banned in China in September 2017. Exchange platforms that traded cryptocurrencies or provided facilitation services were also ordered to be closed following the crackdown on ICOs. Many exchanges chose to relocate to jurisdictions that are more favourable to cryptocurrencies than China. However, organizers and promoters of overseas ICOs and exchanges may not be free from the long arm of jurisdiction of Chinese criminal laws if those persons are Chinese citizens, or if Chinese investors have invested in overseas ICOs or traded cryptocurrencies on overseas exchanges.

Interestingly, it is not illegal to hold Bitcoins and other cryptocurrencies, or even to buy or sell them in China. The Chinese government also encourages the development and application of blockchain technology, but has made it clear that blockchain technology must service the real economy.

China’s policy on ICOs

On 4 September 2017, seven government agencies of China, i.e. the People’s Bank of China (PBOC), the Central Cybersecurity and Information Technology Lead Group of the Communist Party of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, China Banking Regulatory Commission, China Security Regulatory Commission and China Insurance Regulatory Commission, jointly issued the Notice regarding Prevention of Risks of Token Offering and Financing. The notice banned all ICOs in China and ordered that any organizations or individuals who had previously completed an ICO to make arrangements including the return of token assets to investors to protect investor rights.

To understand this harsh attitude, we have to look at the big picture of China’s economy and financial market. In the past 20-plus years, China has enjoyed rapid economic development which, many believe, came at the cost of high leverage in the financial system and accumulation of financial risks. In the past two years, control of financial risks and stabilization of the financial system has become the top priority of the PBOC. Before ICOs, internet platforms providing P2P loans and micro lending had been targeted by the PBOC and other financial regulators, and are still in the process of cleansing and rectification. It is no surprise that ICOs, due to the sheer increase both in numbers and the amount of funds raised, as well as some socially chaotic events caused by ICOs, received the death sentence from the PBOC.