Crypto in China

China maintains the world's most comprehensive cryptocurrency prohibition. The People's Bank of China (PBOC) issued its first crypto trading ban on September 4, 2017, prohibiting initial coin offerings and ordering exchanges to cease operations. The regulatory framework solidified on May 18, 2021, when three state agencies—the PBOC, the National Development and Reform Commission (NDRC), and the Ministry of Industry and Information Technology—jointly announced a complete ban on cryptocurrency mining. This was followed by the PBOC's September 24, 2021, directive that declared all cryptocurrency transactions illegal, including services provided by offshore exchanges to Chinese residents. The State Administration of Foreign Exchange (SAFE) enforces capital controls that prevent cryptocurrency purchases through official channels. The legal basis stems from China's Cybersecurity Law and the PBOC's authority over payment systems, treating cryptocurrencies as unauthorized financial instruments with no legal status under the Commercial Banking Law or Securities Law.

China imposes no specific cryptocurrency tax framework because all cryptocurrency transactions are illegal. The State Taxation Administration (STA) has issued no guidance on cryptocurrency taxation since the 2021 ban. Before the prohibition, some local tax authorities attempted to apply existing tax codes: the Individual Income Tax Law (Article 3) could impose 20% capital gains tax on trading profits, while the Value-Added Tax Law (Article 12) could apply 6-13% VAT on business transactions involving cryptocurrencies. However, these applications were inconsistent and unenforced nationally. Currently, cryptocurrency gains remain untaxed because acknowledging them would contradict the prohibition. The STA focuses instead on tax evasion cases involving illegal cryptocurrency transactions, using the Tax Collection and Administration Law (Article 63) to pursue penalties for undeclared income from crypto activities.

Official cryptocurrency adoption in China is zero, with the PBOC reporting no licensed exchanges or registered users since 2021. However, Chainalysis estimated in 2023 that Chinese users conducted $86.4 billion in cryptocurrency transactions via VPNs and offshore accounts, representing 8.2% of global volume despite the ban. Institutional activity is limited to blockchain technology development without cryptocurrency integration; the Beijing Blockchain Innovation Development Action Plan (2020-2022) allocated $1.6 billion for enterprise blockchain projects. The Digital Yuan (e-CNY) reached 260 million wallets by December 2023, processing $250 billion in cumulative transactions. Real use cases center on the e-CNY: Shenzhen distributed $4.7 million in digital yuan subsidies in 2023, while JD.com reported 4 million e-CNY transactions during the 2023 Singles' Day shopping festival. Cryptocurrency usage persists only through underground peer-to-peer markets and offshore exchange accounts.