China to Implement Crypto Regulations by 2024
China, once a hub for Bitcoin trading and mining, has been grappling with how to regulate cryptocurrency without jeopardizing its fiat currency. In September 2021, the Chinese government banned non-government-approved cryptocurrencies due to concerns about destabilizing the economy. The country has considered creating its own digital currency and is actively participating in cryptocurrency regulatory development efforts.
In 2011, BTC China, the first crypto exchange, opened in China, marking the country’s early acceptance of digital currencies. However, the government has since implemented various regulations. In December 2013, the People’s Bank of China (PBOC) and other authorities issued a circular mandating financial institutions to abstain from Bitcoin-related activities. Then, in September 2017, the PBOC and other authorities released an announcement stating that initial coin offerings (ICOs) and virtual currencies would not have legal status and banned all ICO activities and token trading platforms. As a result, Binance, a prominent crypto exchange, had to relocate outside of China.
The most significant regulatory development came in September 2021 when the PBOC and nine other central authorities issued Circular 237. This regulatory document emphasized the illegality of virtual currency-related activities, targeting offshore virtual currency exchanges serving Chinese residents. Financial institutions and payment service providers were also instructed to prohibit any services related to virtual currency transactions. The circular stressed enhanced supervision and monitoring of virtual currency trading and speculation.
The National Development and Reform Commission also released a circular in September 2021, regulating virtual currency mining activities. The PBOC further intensified its examination of crypto assets in its recent Financial Stability Report for 2023, advocating for consistent oversight and regulation across the globe.
Regarding taxation, as cryptocurrencies are deemed illegal in China, there is currently no tax regime in place for crypto taxation.
In terms of legal status, Bitcoin trading, DeFi, mining, and NFTs are all considered illegal in China. The government has expressed its disapproval of cryptocurrencies, viewing them as posing risks to the financial system and empowering non-state players.
Despite the stringent regulations, there have been rumors of China potentially easing its stance on cryptocurrencies. However, the likelihood of crypto liberalization in the near future remains low due to Beijing’s perspective on the matter.
China has achieved significant financial inclusion through government-approved digital financial technology. The introduction of the digital renminbi reflects the Chinese government’s efforts to exert control over the rapidly digitizing financial and monetary system. As such, it is unlikely that decentralized cryptocurrencies will be welcomed in the country anytime soon.
It is important to note that Hong Kong’s financial system operates differently from mainland China’s, aligning more closely with the global financial system. There is no expectation of convergence between the two systems.
In conclusion, China’s regulations on cryptocurrencies have evolved over time, with the government taking a strict approach to protect its fiat currency and financial system. The country’s focus on digital financial technology and the digital renminbi indicates a preference for centralized control.