China does not recognize cryptocurrencies as legal tender and the banking system is not accepting cryptocurrencies or providing relevant services. The government has taken a series of regulatory measures to crack down on activities related to cryptocurrencies for purposes of investor protection and financial risk prevention. Those measures include announcing that initial coin offerings are illegal, restricting the primary business of cryptocurrency trading platforms, and discouraging Bitcoin mining. In the meantime, China’s central bank is reportedly considering issuing its own digital currency.
China has not passed any legislation regulating cryptocurrencies. Regulators are not recognizing cryptocurrencies as legal tender or a tool for retail payments, and the Chinese banking system is not accepting any existing cryptocurrencies or providing relevant services. In a 2013 circular, the government defined Bitcoin as a virtual commodity, but while warning citizens about the risks of virtual commodities allowed them to freely participate in the online trading of such commodities.
In recent years, especially since September 2017, however, the government has taken a series of regulatory measures to crack down on activities related to cryptocurrencies, mainly due to the concern over financial risks associated with such currencies.
II. Regulatory Measures on Cryptocurrencies
A. Ban on Initial Coin Offering
The practice of raising funds through initial coin offerings (ICOs) is completely banned in China. On September 4, 2017, seven Chinese central government regulators—the People’s Bank of China (PBOC), the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), the State Administration for Industry and Commerce (SAIC), the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC), and the China Insurance Regulatory Commission (CIRC)—jointly issued the Announcement on Preventing Financial Risks from Initial Coin Offerings (ICO Rules) for purposes of investor protection and financial risk prevention.
Under the ICO Rules, ICOs that raise cryptocurrencies such as Bitcoin and Ethereum through the irregular sale and circulation of tokens are essentially engaging in public financing without official authorization, which is illegal. The ICO Rules warn that financial crimes may be involved in ICOs, such as the illegal issuance of tokens or securities, illegal fundraising, financial fraud, or pyramid selling. Cryptocurrencies involved in ICOs 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.”
B. Restrictions on Cryptocurrency Trading Platforms
The ICO Rules also impose restrictions on the primary business of cryptocurrency trading platforms. According to the ICO Rules, the platforms are prohibited from converting legal tender into cryptocurrencies, or vice versa. They are also prohibited from purchasing or selling cryptocurrencies, setting prices for cryptocurrencies, or providing other related agent services. Government authorities may shut down the websites and mobile applications of platforms that fail to comply, remove the applications from application stores, or even suspend the platform’s business licenses.
Following the issuance of the ICO Rules on September 4, 2017, senior executives of cryptocurrency trading platforms in China were reportedly summoned for “chats” by regulators. On September 15, 2017, for example, the Beijing Internet Finance Risk Working Group summoned senior executives of cryptocurrency trading platforms in Beijing. The platforms were reportedly ordered to immediately cease new client registration and announce the deadline by which time the platforms would cease all cryptocurrency trading. As a result, the cryptocurrency trading platforms essentially shut down their trading business in China. More recently, in February 2018, the South China Morning Post reported that China was planning to block websites related to cryptocurrency trading and ICOs, including foreign platforms, in a bid to completely stamp out cryptocurrency trading.
C. Requirements for Financial Institutions
The ICO Rules 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. They were also prohibited from providing insurance services relating to ICOs or cryptocurrencies.
In fact, a ban on bank and payment institution dealings in Bitcoin has been in place since 2013. According to the Notice on Precautions Against the Risks of Bitcoins jointly issued by the PBOC, MIIT, CBRC, CSRC, and CIRC on December 3, 2013, banks 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. They are also prohibited from accepting Bitcoins or using Bitcoins as a clearing tool, or trading Bitcoins with Chinese yuan or foreign currencies.
D. Discouraging Bitcoin Mining
In January 2018, China’s Leading Group of Internet Financial Risks Remediation reportedly requested that local governments remove existing, preferential policies for Bitcoin mining companies in terms of electricity prices, taxes, or land use, and guide the orderly exit of such companies from the Bitcoin mining business. The localities must submit regular reports on Bitcoin mining operations in their jurisdictions. Since then regulations on Bitcoin mining have been strengthened, at least in some Chinese provinces. Many Bitcoin mines in China have stopped operating.
III. Central Bank Digital Currency
Despite cracking down on privately-issued cryptocurrencies, China’s central bank, the PBOC, is reportedly considering issuance of its own digital currency. According to a March 2018 interview with Zhou Xiaochuan, the then governor of the PBOC, the PBOC has been conducting a study of digital currency for over three years and has set up an Institute of Digital Money within the PBOC.
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.” The digital currency would be a digital form of the sovereign currency that is backed by the central bank. “Unlike 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.”
UPDATE (July 12, 2018)
On July 6, 2018, the People’s Bank of China indicated that Chinese authorities had identified 88 virtual currency trading platforms and 85 ICO platforms, which have “basically all safely withdrawn from the market.” In the wake of the regulatory measures the government has instituted since September 2017, Bitcoin traded with Chinese yuan has dropped from over 90% of global Bitcoin trading to under 1%.
Prepared by Laney Zhang
Foreign Law Specialist
 The term 虚拟货币 (“virtual currencies”) is used in Chinese.
 Zhou Xiaochuan: Future Regulation on Virtual Currency Will Be Dynamic, Imprudent Products Shall Be Stopped for Now,Xinhuanet (Mar. 1, 2018), http://www.xinhuanet.com/finance/2018-03/10/c_129826604.htm (in Chinese), archived at https://perma.cc/2CW7-8F2T.
 People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission Notice on Precautions Against the Risks of Bitcoins (Dec. 3, 2013), http://www.miit.gov.cn/n1146295/n1652858/n1652930/ n3757016/c3762245/content.html (in Chinese), archived at https://perma.cc/S4DN-DXHD (all translations by author).
 PBOC, CAC, MIIT, SAIC, CBRC, CSRC, and CIRC, Announcement on Preventing Financial Risks from Initial Coin Offerings (Sept. 4, 2017), http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3374222/index.html (in Chinese), archived at https://perma.cc/N88N-5CV5. See Greg Pilarowski & Lu Yue, China Bans Initial Coin Offerings and Cryptocurrency Trading Platforms, China Regulation Watch (Sept. 21, 2017), http://www.pillarlegalpc.com/en/news/2017/09/21/china-bans-initial-coin-offerings-and-cryptocurrency-trading-platforms/, archived at https://perma.cc/VQ2W-T4HY.
 Announcement on Preventing Financial Risks from Initial Coin Offerings, supra note 4.
 Wu Yujian, Bitcoin Exchanges Ordered to Formulate Non-Risk Clearance Plan and Shut Down by End of September (Updated), Caixin (Sept. 15, 2017), http://finance.caixin.com/2017-09-15/101145796.html (in Chinese), archived at https://perma.cc/NQ4S-MDBL.
 Xie Xu, China to Stamp Out Cryptocurrency Trading Completely with Ban on Foreign Platforms, South China Morning Post (Feb. 7, 2018), http://www.scmp.com/business/banking-finance/article/2132009/china-stamp-out-cryptocurrency-trading-completely-ban, archived at https://perma.cc/42H4-F2AW.
 PBOC, MIIT, CBRC, CSRC, and CIRC Notice on Precautions Against the Risks of Bitcoins, supra note 3.
 Wu Yujian et al., China Clamps Down on Preferential Treatment for Bitcoin Mines, Caixin (Jan. 4, 2018), https://www.caixinglobal.com/2018-01-04/china-clamps-down-on-preferential-treatment-for-bitcoin-mines-101193622.html, archived at https://perma.cc/8564-FEXC.
 Song Di, Bitcoin Regulatory “Tight Inside and Loose Outside,” Many “Mining Sites” Have Stopped Operating, Economic Observer Net (Jan. 13, 2018), http://www.eeo.com.cn/2018/0113/320754.shtml (in Chinese), archived athttps://perma.cc/49S8-JQVK.
 Zhou Xiaochuan: Future Regulation on Virtual Currency Will Be Dynamic, Imprudent Products Shall Be Stopped for Now, supra note 2.
 Wang Yanfei, PBOC Inches Closer to Digital Currency, China Daily (Oct. 14, 2017), http://www.chinadaily. com.cn/business/2017-10/14/content_33235955.htm, archived at https://perma.cc/T4R8-R4PU.
Last Updated: 12/30/2020