Back to Index of Cryptoasset Regulations

In China, cryptocurrencies are not legal tender and financial institutions are not allowed to accept cryptocurrencies or provide any relevant financial services. Initial coin offerings were banned in 2017, and cryptocurrency trading platforms have essentially shut down their trading business in China. However, the possession and transfer of cryptocurrencies by individuals do not appear to be specifically regulated; in respect of these cases, cryptocurrencies could be protected by Chinese law as property with economic value.

I. Approach to Assets Created Through Blockchain

China does not recognize cryptocurrencies[1] as legal tender or a tool for retail payments. In a circular jointly issued by several government regulators warning the public about the risks of bitcoin in December 2013 (2013 Circular), the regulators defined bitcoin as a virtual commodity. The Circular also reminded websites that provide bitcoin trading services to perform their anti-money laundering duties.[2]

Later, in a circular warning about the risks of initial coin offerings (ICOs) issued on September 4, 2017 (2017 Circular), the regulators reiterated that cryptocurrencies, such as Bitcoin and Ethereum, are not issued by the country’s monetary authority and therefore are not mandatorily-accepted legal tender. They do not have equal legal status with fiat currencies and “cannot and should not be circulated and used in the market as currencies.”[3]

The 2017 Circular also imposed restrictions on the primary business activities of cryptocurrency trading platforms, including converting legal tender into cryptocurrencies, or vice versa, purchasing or selling cryptocurrencies, setting prices, or providing other related agent services. According to the Circular, government authorities may shut down the websites and mobile applications of platforms that fail to comply, remove their applications from application stores, or suspend the platform’s business licenses.[4] As a result of the 2017 Circular and the subsequent regulatory measures, cryptocurrency trading platforms have essentially shut down their trading activities in China.[5] 

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II. Custodianship of Cryptocurrencies by Financial Institutions

Financial institutions in China are not allowed to accept cryptocurrencies or provide any relevant financial services. The 2013 Circular provided that financial institutions and payment institutions in China must not deal in bitcoins; use bitcoin pricing for products or services; buy or sell bitcoins; or provide direct or indirect bitcoin-related services, including registering, trading, settling, clearing, or other services. Financial institutions are also prohibited from accepting bitcoins or using bitcoins as a clearing tool, or trading bitcoins with Chinese yuan or foreign currencies.[6]

The 2017 Circular again prohibited financial institutions and non-bank payment institutions from directly or indirectly providing services for ICOs and cryptocurrencies, including opening bank accounts or providing registration, trading, clearing, or liquidation services.[7]

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III. Regulation of Cryptocurrencies as Financial Securities

According to the 2017 Circular, ICOs are “raising virtual currencies through the irregular sale and circulation of tokens,” which are “essentially illegal public financing without official authorization.”[8] The Circular warned that financial crimes may be involved in ICOs, such as the illegal issuance of tokens or securities, illegal fundraising, financial fraud, or pyramid selling.[9]

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IV. Treatment of Cryptoassets Not Considered Securities

Despite of the bans on ICOs and cryptocurrency trading platforms, it appears the possession and transfer of cryptocurrencies by individuals are not specifically prohibited by the Chinese regulators. In respect of these cases, cryptocurrencies could be treated as property with economic value and protected by the General Rules on the Civil Law of the People’s Republic of China (PRC) and the PRC Contract Law.

For example, on October 25, 2018, the Shenzhen Court of International Arbitration reportedly published a case analysis concerning a contract dispute involving the possession and transfer of cryptocurrencies. In this dispute, concerning the return of bitcoins owed by one private individual to another, the arbitral panel found that although bitcoin does not have the legal status equal to currency and should not be utilized as a currency in the market, this does not prevent bitcoin from being protected by Chinese law as property with economic value.[10]

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V. Distinctions in Treatment of Different Categories of Cryptocurrencies

Despite cracking down on privately-issued cryptocurrencies, the People’s Bank of China (PBOC), China’s central bank, is reportedly considering the issuance of its own digital currency.[11] According to a March 2018 interview with Zhou Xiaochuan, the then governor of the PBOC, the PBOC had been conducting a study of digital currency for over three years and has set up an Institute of Digital Money within the PBOC.[12] 

In October 2017, the PBOC reportedly completed trial runs on the algorithms needed for a digital currency supply, “taking it a step closer to addressing the technological challenges associated with digital currencies.”[13]  The digital currency would be a digital form of the sovereign currency that is backed by the central bank. A news report stated that, “[u]nlike Bitcoin or other digital money issued by the private sector, the digital fiat currency has the same legal status as the Chinese yuan, the only fiat currency issued by the People’s Bank of China.”[14]

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Prepared by Laney Zhang
Foreign Law Specialist
April 2019

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Last Updated: 12/30/2020