China

Disclaimer: The regulatory information provided below is for general informational purposes only and may not reflect the most current legal developments. Cryptocurrency regulations are rapidly evolving and can change frequently. This information should not be considered legal or tax advice. Before making any business or investment decisions, please consult with qualified legal, tax, or financial professionals familiar with your specific jurisdiction and circumstances. Always verify current regulations with official government sources and regulatory bodies.

Legal Classification & Regulatory Framework

Cryptocurrency Status

China maintains one of the most restrictive cryptocurrency regulatory environments in the world. The People’s Republic of China (PRC) has implemented a comprehensive ban on virtually all cryptocurrency-related activities within its borders. Under Chinese law, cryptocurrencies such as Bitcoin and Ethereum are not recognized as legal tender and cannot be used as a medium of exchange for goods and services.

While cryptocurrencies were historically classified as “virtual commodities” rather than currencies, Chinese authorities have progressively tightened restrictions to the point where all cryptocurrency trading, mining, and related business activities are now considered illegal. Financial institutions and payment service providers are explicitly prohibited from offering any services related to cryptocurrency transactions, including account opening, trading, clearing, and settlement.

It is important to note that while business activities involving cryptocurrencies are strictly prohibited, the legal status of private cryptocurrency ownership has historically existed in a legal gray area. However, enforcement actions have intensified significantly, and authorities have made clear their intent to eliminate cryptocurrency activity from the mainland economy.

Tax Treatment

Given the comprehensive ban on cryptocurrency activities in China, there is effectively no formal tax framework governing cryptocurrency transactions. Since all crypto trading, mining, and related business operations are prohibited, the government has not established specific tax guidelines for these activities. Any gains derived from cryptocurrency transactions conducted in violation of the ban would be subject to legal action rather than taxation.

Chinese residents who may have acquired cryptocurrency assets before the bans, or who hold assets through offshore means, face significant legal risks. The government’s position is that cryptocurrency activities circumvent capital controls and pose risks to financial stability, making enforcement a priority over taxation.

Regulatory Oversight

China’s cryptocurrency prohibition is enforced through a coordinated effort involving multiple government agencies and regulatory bodies. The primary regulatory authorities include:

The People’s Bank of China (PBOC) serves as the central bank and leads the regulatory effort against cryptocurrency. The PBOC has issued multiple notices classifying cryptocurrency activities as illegal and directing financial institutions to cease all related services. The central bank also oversees the development and rollout of China’s own central bank digital currency, the digital yuan (e-CNY).

The Ministry of Public Security (MPS) functions as the national police force responsible for investigating and prosecuting criminal activities associated with cryptocurrencies, including money laundering, illegal fundraising, and financial fraud enabled by digital assets.

The China Banking and Insurance Regulatory Commission (CBIRC) supervises all banks and insurance companies, ensuring they do not provide any services for cryptocurrency-related activities, including accounts, clearing, settlement, or insurance for virtual currency businesses.

The China Securities Regulatory Commission (CSRC) acts as the securities watchdog, focusing on preventing illegal public offerings through digital tokens and enforcing the ban on Initial Coin Offerings (ICOs) and token-based fundraising.

The State Administration of Foreign Exchange (SAFE) monitors cross-border financial flows and targets overseas cryptocurrency exchanges that attempt to provide services to Chinese residents, working to prevent capital flight through digital assets.

The Supreme People’s Court and Supreme People’s Procuratorate provide judicial interpretations and prosecutorial authority, rendering cryptocurrency-related investment contracts invalid and pursuing criminal charges against individuals and organizations involved in illegal crypto activities.

Business Environment

Banking Relationships

Traditional banks in mainland China are strictly prohibited from engaging in any cryptocurrency-related activities. Financial institutions cannot open accounts for cryptocurrency businesses, process transactions involving digital assets, or provide any form of banking services to individuals or companies engaged in cryptocurrency trading or operations.

Banks are required to actively monitor and report any suspicious activities that may be related to cryptocurrency transactions. This includes scrutinizing customer transactions for potential links to overseas cryptocurrency exchanges and implementing enhanced due diligence measures to detect and prevent cryptocurrency-related money flows.

The banking sector’s complete separation from cryptocurrency activities means that legitimate business operations in this space are effectively impossible within mainland China. Any attempt to establish banking relationships for cryptocurrency purposes would face immediate regulatory intervention.

Licensing Requirements

China does not offer any licensing framework for cryptocurrency exchanges, wallet providers, or other virtual asset service providers. Since all cryptocurrency-related business activities are prohibited, there is no pathway to legal operation through licensing or registration.

Cryptocurrency exchanges, whether domestic or foreign, cannot legally operate within mainland China or actively market their services to Chinese residents. The government actively blocks access to overseas cryptocurrency platforms and pursues enforcement actions against those who attempt to circumvent these restrictions.

Mining operations, which were once a significant industry in China, have also been completely banned. The government launched extensive campaigns to shut down mining facilities nationwide, citing concerns about energy consumption, financial risks, and the facilitation of illegal activities.

Innovation Support

While China prohibits private cryptocurrencies, the government has invested heavily in blockchain technology and its own central bank digital currency initiative. The digital yuan (e-CNY) represents China’s state-controlled alternative to decentralized cryptocurrencies and has been in development since the mid-2010s.

The e-CNY operates under the complete control of the People’s Bank of China and functions as a digital legal tender. Unlike cryptocurrencies, it is centralized, traceable, and integrated into the existing financial system. The government has conducted extensive pilot programs across multiple cities and is progressively expanding its adoption for retail payments, cross-border transactions, and integration with existing payment platforms such as Alipay and WeChat Pay.

China has also announced significant investments in blockchain infrastructure development, with plans to attract substantial annual investment in national blockchain initiatives. However, these efforts focus on permissioned, enterprise blockchain applications rather than public, decentralized cryptocurrency networks.

Market Characteristics

Adoption Patterns

Before the comprehensive bans, China was one of the world’s largest cryptocurrency markets, with significant participation in Bitcoin mining and trading. At its peak, China accounted for a substantial majority of global Bitcoin mining hashrate. However, enforcement actions have dramatically reduced visible cryptocurrency activity within the country.

Despite the bans, some cryptocurrency activity persists through underground channels. Some Chinese residents continue to access overseas cryptocurrency exchanges through VPNs and engage in peer-to-peer and over-the-counter (OTC) trading using stablecoins. These activities, however, carry significant legal risks and operate entirely outside regulatory protection.

The government’s crackdown has led to a migration of cryptocurrency businesses and mining operations to other jurisdictions, fundamentally reshaping the global distribution of cryptocurrency activity. Many Chinese cryptocurrency entrepreneurs and miners have relocated to more permissive regulatory environments.

Industry Focus

The legitimate blockchain industry in China focuses exclusively on permissioned, enterprise applications that operate within the government’s regulatory framework. Areas of development include supply chain management, digital identity verification, cross-border trade finance, and government services digitization.

The digital yuan ecosystem represents the primary focus of government-supported digital currency innovation. Financial institutions, technology companies, and payment providers are actively involved in building infrastructure and applications for the e-CNY, which the government views as a strategic priority for monetary sovereignty and international competitiveness.

Chinese technology companies continue to develop blockchain solutions for enterprise clients. Still, these efforts remain firmly within the boundaries established by regulators and do not involve public cryptocurrencies or decentralized finance applications.

Regulatory Evolution

China’s cryptocurrency regulations have progressively tightened over time. The regulatory journey began with restrictions on financial institutions handling Bitcoin transactions, followed by bans on ICOs and domestic cryptocurrency exchanges. Eventually, it expanded to include mining operations and comprehensive prohibitions on all cryptocurrency activities.

The government’s stance appears firmly set against private cryptocurrencies for the foreseeable future, driven by concerns about financial stability, capital controls, monetary sovereignty, and the potential for illicit activities. Officials have repeatedly emphasized that the digital yuan provides the approved pathway for digital currency innovation.

However, some observers note that discussions among certain government bodies suggest ongoing internal debate about digital assets and stablecoins. Whether this could eventually lead to any softening of China’s strict cryptocurrency position remains highly uncertain.

Hong Kong: A Distinct Regulatory Environment

It is essential to distinguish between mainland China and Hong Kong, which operates as a Special Administrative Region with its own legal system. Hong Kong has developed a comprehensive regulatory framework for virtual assets that stands in stark contrast to mainland policies.

Hong Kong has established a mandatory licensing regime for Virtual Asset Service Providers (VASPs) under the Securities and Futures Commission (SFC). The Hong Kong Monetary Authority (HKMA) has implemented a separate licensing framework for stablecoin issuers. These frameworks allow licensed cryptocurrency exchanges to operate legally in Hong Kong, subject to strict compliance requirements.

Hong Kong positions itself as a global digital asset hub, offering regulatory clarity, investor protections, and increasingly, access to global liquidity for licensed platforms. However, these regulations apply only to Hong Kong and do not affect the comprehensive ban maintained in mainland China.

For Current Information:

• People’s Bank of China (PBOC) – www.pbc.gov.cn/en
• China Securities Regulatory Commission (CSRC) – www.csrc.gov.cn/csrc_en
• State Administration of Foreign Exchange (SAFE) – www.safe.gov.cn/en
• Hong Kong Securities and Futures Commission (SFC) – www.sfc.hk/en
• Hong Kong Monetary Authority (HKMA) – www.hkma.gov.hk/eng