China’s regulatory body for foreign exchange has enacted new mandates obliging banks to scrutinize and report risky transactions, particularly those related to cryptocurrencies. These measures aim to restrain Chinese investors from trading in Bitcoin and other digital assets.
Under the new directives, banks are required to identify and report foreign exchange activities, including underground banking, cross-border gambling, and unauthorized financial transactions involving cryptocurrencies. This mandate applies to all Chinese banking institutions, which must now evaluate trades based on the identities involved, the origin of funds, and trade frequency.
This initiative underscores China’s persistent and stringent stance on regulating cryptocurrency activities. Cryptocurrencies are perceived as undermining the country’s financial stability. Liu Zhengyao, a legal expert with the ZhiHeng law firm in Shanghai, remarked via WeChat that these regulations provide a foundation for penalizing cryptocurrency trading. The regulatory climate in mainland China is likely to intensify, he added.
Liu further pointed out that using yuan for cryptocurrency purchases that are subsequently exchanged for foreign currencies may now be categorized as a cross-border financial activity involving cryptocurrencies, particularly if the sums exceed lawful limits.
Since 2017, China has imposed severe restrictions on cryptocurrency trading, barring banks and payment systems from engaging with digital assets. In May 2021, the People’s Bank of China (PBOC) rendered transactions involving Bitcoin and similar cryptocurrencies illegal. However, despite its vehement anti-crypto policies, China retains over 190,000 BTC, making it the world's second-largest government Bitcoin holder, following the United States. These assets were primarily obtained through confiscations linked to illicit trading operations.
Notably, Justin Sun, the founder of the Tron blockchain, advocated in July 2024 for China to adopt a more progressive cryptocurrency policy. "China should make further progress in this area. Competition between China and the US in Bitcoin policy will benefit the entire industry," Sun articulated.
Furthermore, a recent ruling by a Chinese court acknowledged that, while cryptoassets bear "property attributes," Chinese law does not outright prohibit them. Nonetheless, these protections are confined to crypto as a commodity and do not extend to their use as currency or business instruments.