Unusual for the rest of the world, the Chinese government has always attempted – and largely succeeded – to control the uncontrollable. The liquidity of the internet is pervasive, but not in China. Alongside other tight controls on social media and online content, comes the new effort by the current regime to stamp out cryptocurrency trading.
Last year, the Chinese government made all domestic ICO (Initial Coin Offering) activity illegal, warned citizens not to participate in foreign ICOs, and ordered all local crypto exchanges to shut down. Now, the Chinese regime is set to enforce a nationwide ban on citizens trading cryptocurrencies offshore.
The People’s Bank of China (PBOC) stated that in order “to prevent financial risks, China will step up measures to remove any onshore or offshore platforms related to virtual currency trading or ICOs”. The ban will entail blocking foreign websites that facilitate trading, as well as tightening up on entities promoting offers or trading in any way within the country.
Donald Zhao, a stand-alone trader who left Beijing for Tokyo as the local ban came into effect late in 2017 told South China Morning Post, “It is common for people to use VPNs (Virtual Private Network) to trade cryptocurrencies, as many exchange platforms have relocated to Japan or Singapore.” The new move means it would be even harder to circumvent the ban in China, while anyone promoting related business programs may be arrested, according to Zhao.
Ads for virtual currencies have already been discontinued on Baidu, the largest Chinese search engine. The local social media platform Weibo has also binned any promotion or depiction of cryptocurrencies.
But what is the Chinese experience after last year’s bans?
Life finds a way
When an order to halt ICOs was first initiated, many in China immediately suspected this would be the first part of a multi-stage shutdown. Normally, when the Chinese government wants to make something complex illegal, it will not immediately outlaw the entire thing.
However, the Chinese have admitted that ICOs and virtual currency trading did not completely withdraw from the country following the official ban – many people turned to overseas platforms.
Some of the most popular cryptocurrency exchanges are still operated locally in China. The reason why they were able to continue is that they completely relocated their operations to Hong Kong or another similar location.
Hong Kong is part of China, but it operates under significantly different laws. This is through a policy known as one country, two systems. Therefore, the laws requiring the shutdown of exchanges did not apply there. And so today, exchanges like Binance, Kucoin, and Huobi continue to be widely successful and accepted by traders all over the world.
For those wishing to buy and sell cryptocurrency for Chinese RMB, services like localbitcoins.com offer an easy way to do this. The service typically works in conjunction with Alipay (or WeChat pay), which is a mobile banking app that allows instant transfers with no fee through a mobile phone. In this way, Bitcoin trades can be made safely and instantly thanks to localbitcoins.com and its escrow and reputation tracking service.
China is also often thought of as a location for the centralized factory mining of Bitcoin and other cryptocurrencies. At this point, the Chinese government has not directly made mining illegal. While they have taken some steps to rein in electricity usage in areas such as Sichuan province, the practice still continues generally unabated to this day.
Additionally, individual or hobby miners that mine out of their own homes are unaffected, as they are simply too small to appear on the radar. In either case, more and more Chinese miners are looking for new countries to relocate their business, as reported by Cryptonews.com.
While most Western countries seem only interested in taxing income made through cryptocurrency investments or salaries, China seems to have another concern entirely. Last year saw the enactment of significant capital flight laws.
Capital flight laws are financial regulations that are designed to limit the flow of money from domestic to international accounts or sources. Basically, it aims to slow down the speed at which money can leave the country. In China, it is quite common for wealthy people to leave the country and move to greener pastures. Understandably, these wealthy people want to take their money with them.
The country has also been actively shutting down various loopholes such as using a debit card in a foreign country to buy luxury items, and then return them in exchange for cash.
While the government has not explicitly said so, it is obvious that cryptocurrency poses a potential capital flight risk.
What’s next? It looks like the government is aiming to tighten regulations further on the crypto world. Li Lihui, former president of the Bank of China, one of the largest state-owned commercial banks in the country, told South China Morning Post, “regulators will certainly step in”, if any kind of financial innovations infringe upon the interests of consumers and affect the stability of the financial market. But will the crypto community find its way again?