Crypto in China

China maintains the world’s strictest prohibition on cryptocurrency activities. On September 24, 2021, the People’s Bank of China (PBOC), alongside the National Development and Reform Commission (NDRC) and nine other agencies, issued the *Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation*, which declared all crypto trading, token issuance (ICOs), and derivatives services illegal. This followed the 2017 ban on ICOs and domestic exchanges. The PBOC’s *Notice on Preventing the Risks of Virtual Currency Trading* (2013) had already barred financial institutions from handling Bitcoin. Today, all crypto-related activities—mining, trading, and payment processing—are classified as illegal financial activities under China’s *Criminal Law* and *Anti-Money Laundering Law*. Offshore exchanges like Binance and OKX are blocked via internet firewalls, but users access them through VPNs, creating a gray market. The State Administration of Foreign Exchange (SAFE) enforces capital controls to prevent crypto-related outflows, with penalties including fines and imprisonment for violations.

China imposes no formal tax framework on cryptocurrency because all trading and mining are banned. The State Taxation Administration (STA) has not issued specific guidance on crypto income, as the activity is illegal under the 2021 PBOC notice. However, the *Individual Income Tax Law* (2018) theoretically applies to any income source, including crypto gains, but enforcement is nonexistent due to the ban. For businesses, the *Enterprise Income Tax Law* (2008) could tax crypto-related profits if discovered, but no cases have been publicly reported. In practice, the government treats crypto as a prohibited asset class, so no tax rates, reporting thresholds, or filing requirements exist. The 2021 ban effectively nullified any tax obligations, as the state does not recognize crypto transactions. Offshore exchanges serving Chinese users via VPNs do not report to Chinese authorities, creating a tax-free environment for participants, though they risk asset seizure if detected.

Despite the 2021 ban, China’s crypto adoption persists through offshore exchanges accessed via VPNs. Chainalysis’ 2023 Global Crypto Adoption Index ranked China 10th in grassroots adoption, with an estimated 20-30 million active users trading through platforms like Binance, OKX, and Bybit. Trading volumes on these exchanges from Chinese IP addresses reached $40 billion monthly in 2024, per data from Kaiko. Institutional activity is minimal due to legal risks, but some high-net-worth individuals use Hong Kong-based licensed exchanges (e.g., OSL, HashKey) after the SAR’s 2023 licensing regime. The Digital Yuan (e-CNY), launched in 2020, has expanded to 260 million wallets and $30 billion in transaction volume by mid-2024, per PBOC data, used for retail payments and cross-border trade with ASEAN nations. However, e-CNY is a CBDC, not a decentralized crypto asset, and its adoption is state-driven, not market-led.