Since the creation of bitcoins, China has very quickly turned into a booming bitcoin market, with Chinese Renminbi (CNY) accounting for 50-90% of global cryptocurrency trading by volume between the period 2014-2016.149

But it also soon became one of the earliest countries to aggressively clamp down on such trading and adopt a highly unfriendly policy towards them. All cryptocurrency trading platforms have been closed down since September 2017, and initial coin offerings (“ICOs”) have also been called to a stop. While Chinese cryptocurrency investors remain as a powerful source of trading and mining on the global market, the Chinese government’s position has always remained clear and tough, and before any change of the administrators’ views could happen, ICOs and cryptocurrency trading will face increasing obstacles in a country where its legal structure and administrative system would give regulatory bodies ample resources to crack down this new invention.

Regulatory framework

A. General Framework

i. 2013 Notice and 2017 Notice

The foundation of the government’s management on cryptocurrency and ICO are at this stage based on two notices issued by the People’s Bank of China (“PBoC”), the central bank of China, together with several other relevant regulatory bodies including the Banking Regulatory Commission (“BRC”), Securities Regulatory Commission (“SRC”), Insurance Regulatory Commission (“IRC”), and the Ministry of Industry and Information Technology (“MIIT”). Such notices are, strictly speaking, not laws or regulations, and only carry administrative force towards bodies or entities under their supervision (e.g. banks, securities companies, and insurance companies); but they at the present already carry dominant restrictive effect because of the number of government departments co-signing and the extensive authority they enjoy. Notices reflect the current policy position adopted by the government, and carry administrative force, but they can be withdrawn or replaced later.

The regulatory bodies gave their definition as to the property of cryptocurrency in both notices. In the first notice issued on 3 December 2013150
(“2013 Notice”), the regulators clearly denied the recognition of bitcoin as a type of currency because it was not issued by a monetary authority; but they accepted that bitcoin “by its essence shall be considered as a type of virtual commodity”, and thereby still allowing bitcoin trading on the Internet. Financial and payment institutions, however, were already forbidden from carrying out any bitcoin related business, and PBoC required all entities under its administration to “make efforts in preventing money laundering risks that may arise from bitcoin.”151

In the second notice issued on 4 September 2017152
(“2017 Notice” or also called the “ICO Ban”), the regulators again clearly ruled out cryptocurrencies as a type of legal currency, and it therefore cannot be used or circulated on the market as such. Cryptocurrencies are called as “virtual currencies”, and ICOs are seen as activities bordering on “unapproved and illegal public fundraising”, “illegal sales of token notes”, “illegal securities issuance”, “financial fraud” and “pyramid sales schemes”, and were immediately called to a stop. All cryptocurrency trading platforms were also closed down from operation, and financial and payment institutions were again reminded of their redline from engaging in any relevant business.153

As mentioned, although such notices are not laws and are subject to sudden changes when any policy adjustments indeed happen, they still have huge administrative impact in China because the co-issuers of the two notices all carry wide executive authority under the Chinese legal framework, and we will now look into each of the relevant set of laws and regulations in turn.

ii. A closer look at the 2017 Notice

As is customarily the case, the wording of the 2017 Notice is somewhat vague and may lack the rigour of terminology sometimes seen with other regulators. A prominent reason for this is that Chinese authorities have a strong penchant to maintain minimum amount of uncertainty, i.e. also leeway to their advantage, and which decreases necessity for short-term amendments, retractions and or extensions. As a result, there is indeed a degree of uncertainty somewhat above what is even generally the case in the field of crypto tokens. Similarly, due to the nature of crypto tokens, the terminology used does sometimes not reflect the current state of the art, and may not be as rigorous as may be the case for regulators in other jurisdictions.

Generally it can be stated that the various authorities who have pronounced the ICO ban regulate the domestic Chinese market and its domestic participants. Thus the ban primarily addresses Chinese companies and individuals resident in China who carry out a “China-based” ICO, as well as exchanges dealing with tokens. By way of extension and interpretation, the ban further can be understood to also address Chinese-based distribution and/or market platform to locally target Chinese contributors for foreign-based ICOs. The ban may further be understood to also address such foreign-based ICOs who are physically present in China.


  • ICOs conducted through a non-Chinese entity (e.g. Swiss entity) with no distribution & marketing activities locally in China are not affected by the ban.
  • While a China-based distribution and marketing presence of ICOs conducted through a non-Chinese entity are not specifically targeted, we are of the opinion that China-based companies and individuals actively distributing and marketing foreign-based ICOs may fall under the ban under a wider interpretation.
  • Even in the assumption of China-based distribution and marketing activities, the ban and generally China law does by principle not aspire to extraterritorial application and the foreign entity is not subject to China law.
  • Exchanges not located in China and who do not have a physical presence in China are also not affected by the ban.

B. Money Regulations

The Law on the People’s Bank of China set down that “the legal tender of the People’s Republic of China is the Renminbi (RMB)” (Art. 16), and only the PBoC could “issue Renminbi and control its circulation” (Art. 4(3)). No other types of currencies or tenders can therefore be used as a medium of exchange for goods or services within the territory of China (except, of course, in its special administrative regions). The 2013 Notice stressed this legal interpretation; Baidu, one of China’s largest Internet company and which tentatively began to accept bitcoin as an exchange medium for the services provided to its online customers from October 14, 2013, soon called a halt to it on December 7 following the 2013 Notice.154

Not only are cryptocurrencies not legal tenders of China, they “do not have the properties of a currency such as being legal and mandatory tender” (2013 Notice), i.e. not foreign currencies either. Instead, they are only a type of “virtual commodity” (2013 Notice). The regulatory body of foreign exchange, the State Administration of Foreign Exchange (“SAFE”), was therefore not a co-signee of the two notices.

The consequence of such recognition is that cryptocurrencies therefore do not come under China’s strict foreign exchange control system --- which, all in all, sets an annual limit of USD 50’000 exchange limit on each individual, over which requires proof that further purchase of foreign currencies would not be used in investments abroad or transfer of assets to overseas.155 Chinese traders have therefore always been able to directly trade bitcoins and other types of cryptocurrencies as commodities using Renminbi beyond the annual limit, and even after the issuance of the 2017 Notice, trade volume in Renminbi still accounts for about 14% of the world’s total.156

C. Commodities

The 2013 Notice defined bitcoins and possibly other similar types of cryptocurrencies as virtual commodities. This showed that regulatory control at the time was not so strict yet, and bitcoin trading platforms at the time were only reminded to make registrations at the MIIT as required by all Chinese websites. The 2017 Notice, however, went one step further by forbidding all transaction platforms from ICO transactions, and clearly stated that any disobedient platform can be shut down by MIIT in accordance with the law. MIIT, according to the Administrative Measures on Internet Information Services, does have such authority (Art. 19), especially towards “profit making” Internet information service providers which receive payments from their users --- such as those trading platforms.

Apart from online tradings, commodities are potentially tradable as subjects under futures or options contracts. CME, the world’s largest futures exchange, for example, has already launched bitcoin futures in December 2017.157 However there has never been a futures trading market for such virtual commodities in China. This is because according to Regulations for the Administration of Futures Trading, all futures trading must be carried out in China’s futures exchanges, and no over-the-counter tradings are allowed (Art. 4); setting up of futures exchanges require approval from “State Council’s futures regulatory authority” which is currently the SRC (Art. 6), and so must the establishment of futures companies which intend to take up futures transactions (Art. 15). These rules mean that SRC’s reluctance to grant permission for cryptocurrency futures trading could easily stifle it, and its unfriendly position so far show little opportunity of the market opening up.

D. Securities Laws

Chinese securities laws have large impacts on ICOs. The 2017 Notice focused on clamping down ICOs, which are suspected of constituting “illegal securities issuance and illegal fundraising”. Issuance and trades of securities including shares, bonds and the derivatives of such are regulated under the PRC Securities Law, and Art. 10 of the law stated that any proposed issuance “must be submitted to SRC for examination and approval pursuant to the law. Without such examination and approval, no entities or individuals shall issue securities publicly.” (Art. 10). Unapproved issuance would have to be returned together with the funds raised and their interests, and be fined accordingly (Art. 188). Securities companies underwriting such issuance would also be penalised (Art. 190). And here to “issue securities publicly” means (1) issuance to non-specific persons; (2) issuance to more than 200 specific persons in aggregate; or (3) other legally forbidden issuances (Art. 10).

We can take from there that China still has a highly regulated financial market anyway, and any entity or person who wants to issue any types of security must have the prior approval from, not registration at, the SRC. If shares or bonds were to be issued in the form of ICOs, they would first require SRC approval; but SRC, as seen from the 2017 Notice, almost certainly would not give their approval because the notice called “all types of activities of financing by ICOs to cease immediately”. Actually in April 2016, another notice was also issued by SRC together with a group of other regulatory departments, in which they strictly forbade “online share fundraising”, including through forms such as crowdfunding or fundraising from non-qualified investors.158

The 2017 Notice further defined ICO as “in essence a form of unapproved and illegal public fundraising”, which could therefore be in violation of Art. 176 of the PRC Criminal Law. The Supreme People’s Court gave four conditions, meeting all of which would be considered as violation of the crime:

“(1) absorbing funds without approval from the relevant government department in accordance with the law or on the pretext of lawful operation;
(2) conducting public promotion through channels such as the media, conferences, leaflets and mobile phone messages;
(3) undertaking to repay the principal and interest or a return in the form of currency, physical objects or equity within a time limit; and
(4) absorbing such funds from the general public, i.e. non-specific targets in the society.”159

Although some tried to argue that since cryptocurrencies are not currencies and therefore not “funds”, they could not constitute fundraising, Chinese law experts usually still consider ICOs as having met all of the above four conditions because “funds” do not just mean currency but also the value of exchange, and the easy convertibility into legal tenders and market recognition of the cryptocurrencies’ worthiness have already given them the function of fundraising.160 The Art. 176 crime could be penalised by a highest of ten year imprisonment and RMB 500’000 fine.161

Any institutions which are set up without the PBoC’s approval to engage in “illegal financial business activities” such as the absorption of public funds, fundraising (including those “not in the name of taking deposits from the public, but where the obligations promised to be performed are the same nature”), purchase and sales of foreign exchanges, making trust investments, granting loans, and “other illegal financial business activities as determined by the People’s Bank of China”, are all considered as illegal financial institutions and will be banned and penalised by the latter.162 For those legally established financial institutions, PBoC has already clearly stated in both notices that they are not allowed to engage in “any bitcoin related business”, nor any ICO financings.

E. Securitisations

The question remains, whether commodities or securities, cryptocurrencies or tokens issued through ICOs may be turned into a type of asset backed securitisation. Banks and other institutions regulated by the BRC usually “securitise” these foundational assets, and they would require BRC approval to initiate163. SRC’s Administrative Provisions on the Asset Securitisation Business of Securities Companies and the Subsidiaries of Fund Management Companies164 then laid down conditions for securities companies to engage in securitisation tradings, e.g. setting up of special-purpose vehicles (“SPVs”) for each individual investment scheme (Art. 4), each scheme issuance to only no more than 200 “qualified investors”165 (Art. 29), each subscription with value of no less than RMB 1 million (Art. 29), and filings at China Asset Management Association and SRC within five working days of an SPV’s establishment (Art. 36). Although the higher entry level into the securitisation market could protect all investors with lower risk taking capacity, regulatory approval by the BRC is still needed; unless BRC takes a softer position than PBoC and SRC, which is unlikely as BRC is also a co-signee of the two notices, a Chinese securitisations market for cryptocurrencies is still unlikely.

F. Other Regulations

One of the main concerns of cryptocurrency is always money laundering. Its anonymity and ease of transaction make it an easy medium for illegal transactions. China’s Anti-Money Laundering Law gave the PBoC the duty and power to monitor and prevent money laundering and all financial institutions (such as banks, securities companies, etc.) must cooperate by establishing client identity database and recognition systems, transaction records and suspicious transaction report mechanisms (Art. 3 and Chapter 3); any information relating to money laundering must be passed on to the regulatory body or the police (Art. 7), who will accept and handle. It was reported that in March 2017 (which was before the 2017 Notice), the PBoC had a meeting with several bitcoin trading platforms requesting them to also comply with the duties imposed on financial institutions under the law.166

While domestic trading of cryptocurrencies have been closed down, there is currently no law forbidding the holding of such commodity or the mining of it. Chinese traders can also bypass Chinese Internet control by making trades on overseas trading platforms --- as seen from the figures above, that Chinese currency still accounts for a significant proportion of global trade although it has suffered a plummet. But there have been reports from several sources that the mining industry is also getting wiped out, not directly but through indirect policy pressure such as electricity control, tax, land, environment, etc. 167 (see below).

To conclude, China currently does not have a complete, systematic set of law on cryptocurrency. Instead, its regulation is actually mainly based on its two notices—2013 Notice and 2017 Notice—which reflect the current policy thinking of the government. The legal structure of China determines that the issuing bodies of the notices, including PBoC, SRC, BRC, MIIT and several others, have full flexibility and power to restrict cryptocurrency development. The current policy development also has not shown any sign of softening. But there may be a potential that if cryptocurrency is in the future more widely accepted, new notices will be issued and these policies may change.

Critical thoughts and comparative analysis

The different bans issued during the course of late 2017 have essentially stopped any ICO activity in mainland China. While competent teams remain active and present with new tokens, business models and technical solutions, legally speaking all of the ICO operations take now place outside of China. To what extent this will over time dampen crypto and blockchain efforts in China is disputed.

While there are continuous voices pointing out that both the government and the Communist Party support innovation and notably blockchain-related efforts (for example in the context of the Belt and Road initiative), and while there is a often-voiced expectation that current restrictions will be lifted eventually, this does not seem likely: Some of the Blockchain's main attributes are decentralization implying a lack of (central) control, and an inherent censorship resistance. Further, value-carrying tokens easily defeat national foreign exchange control regulations and limitations. All of these conditions appear to go against the current efforts of the Chinese leadership. As is often the case in China, only time will tell, while the most recent indication to also shut down mining may be taken as a guiding light.

Jiong Sheng, Gianna Abegg, Jackie Yang, Nathan Kaiser (Eiger)