Crypto in China

China's cryptocurrency framework is defined by a comprehensive ban. The People's Bank of China (PBOC) issued the 'Notice on Further Preventing and Handling the Risks of Virtual Currency Trading and Speculation' on September 24, 2021, declaring all virtual currency activities illegal financial activities. This followed the 2017 'Announcement on Preventing Token Fundraising Risks' (ICO ban) and the 2013 notice prohibiting financial institutions from handling Bitcoin. The National Development and Reform Commission (NDRC) classified cryptocurrency mining as an 'eliminated industry' in its 2021 Negative List, leading to a nationwide mining ban. The State Administration of Foreign Exchange (SAFE) monitors cross-border crypto flows to prevent capital flight. Despite the ban, offshore exchanges like Binance and OKX serve Chinese users via VPN, and peer-to-peer trading persists on platforms like Huobi (now HTX). Enforcement relies on the PBOC's network of regional branches and the Ministry of Public Security, which have prosecuted thousands of cases under laws against illegal fundraising and money laundering.

China does not tax cryptocurrency gains because trading is illegal. No specific tax legislation addresses virtual currencies; the State Taxation Administration (STA) has not issued guidance on crypto taxation. Under the Individual Income Tax Law (2018), taxable income includes wages, business income, and incidental income, but crypto is not explicitly covered. The 2021 PBOC notice states that crypto-related activities are illegal financial activities, meaning any profits are not legally recognized. For the digital yuan (e-CNY), the PBOC treats it as legal tender, so no capital gains tax applies. Businesses that accept crypto would violate the ban and face fines under the 'Regulation on the Administration of Payment and Settlement Organizations' (2023). The absence of a tax framework reinforces the ban, as declaring crypto gains would require admitting to illegal activity.

Official adoption is zero, but underground activity persists. The 2021 ban drove exchanges offshore, yet Chainalysis estimates that China remains a significant peer-to-peer market, with roughly $20 billion in annual crypto transaction volume as of 2024, down from over $50 billion in 2020. The PBOC's Digital Currency Research Institute reports 260 million personal e-CNY wallets and 540 million cumulative transactions by mid-2024, though active usage lags. Institutional adoption is prohibited; banks and payment firms like Ant Group face strict penalties for facilitating crypto. Hong Kong's separate regulatory regime allows licensed exchanges (e.g., HashKey), but mainland residents are barred from using them. Mining, once 75% of global Bitcoin hash rate, has relocated to the U.S. and Central Asia. Use cases are limited to illicit finance and capital flight, with the Supreme People's Court classifying crypto as property in a 2023 ruling, enabling theft prosecutions but not legal trading.