Crypto in China

China prohibits cryptocurrency trading and mining under a series of regulatory actions. The People's Bank of China (PBOC) issued the Notice on Further Preventing and Disposing of Risks in Virtual Currency Trading and Speculation on September 24, 2021, declaring all virtual currency-related business activities illegal. This followed the 2017 ban on initial coin offerings (ICOs) and domestic exchanges. The National Development and Reform Commission (NDRC) classified crypto mining as an eliminated industry in September 2021, leading to a complete mining ban. The State Administration of Foreign Exchange (SAFE) enforces foreign exchange controls, targeting cross-border crypto flows. Despite the ban, offshore exchanges serve Chinese users via VPNs, and peer-to-peer trading persists on platforms like Binance and OKX, though with increased enforcement. The PBOC's Digital Currency Research Institute continues to promote the central bank digital currency (CBDC), the digital yuan (e-CNY), as the only legal digital tender.

China does not tax cryptocurrency gains because trading is illegal. No capital gains tax, income tax, or value-added tax applies to crypto transactions. The State Taxation Administration has not issued guidance on crypto taxation, as all related activities are prohibited. However, the government has pursued tax evasion cases involving offshore crypto income under general tax laws. For example, in 2022, authorities in Zhejiang province levied taxes on individuals who failed to report overseas crypto trading profits, treating them as income. The e-CNY, as legal tender, is not subject to capital gains tax. Businesses accepting e-CNY must comply with standard tax reporting. Overall, the tax framework for crypto is non-existent due to the ban, but enforcement against unreported offshore gains is increasing.

Official crypto adoption is zero, but underground activity persists. According to Chainalysis's 2023 Global Crypto Adoption Index, China ranked 11th in grassroots adoption, with an estimated $86.4 billion in on-chain value received between July 2022 and June 2023, largely via VPNs and offshore exchanges. The digital yuan (e-CNY) has seen significant expansion: as of December 2023, the PBOC reported 260 million personal wallets and 140 million transactions, totaling CNY 1.4 trillion ($200 billion). The e-CNY is integrated into major platforms like WeChat Pay and Alipay, and used in 26 pilot regions. Institutional crypto activity is virtually nonexistent due to the ban, but some Chinese firms hold crypto via offshore subsidiaries. Mining, once 75% of global hash rate, has relocated to the U.S. and Kazakhstan.