Essentials: China wouldn’t be China if there wasn’t a way to work around rigid regulations.
Owning Bitcoin is still legal in China and protected by the law.
Most Westerners hugely underestimate the flexibility of the Chinese system.
Chinese entrepreneurs are masters of the grey area.
Wait – didn’t China ban everything related to crypto? Well, yes and no. What is banned are basically all services related to crypto such as facilitate trading, promoting, selling, and even mining cryptocurrencies. From being the world’s largest and liveliest crypto market by far, China went on to crack down on crypto until an once sprawling ecosystem seemingly disappeared. However, seemingly is the keyword here. For China wouldn’t be China if there wasn’t a way to work around rigid regulations.
Despite a half a dozen bans on crypto-related services and activities, there is one thing which has never been forbidden: actually owning the stuff. Yes you read that right, owning Bitcoin (or any other cryptocurrency for that matter) is still legal in China and protected by the law. Now, if you can legally own something, then by conclusion you also have the right to sell it to someone else. After all, this is your legal property, and you can decide what to do with it. Only if you tried to set up a business exchanging crypto into Chinese currency you would face legal issues.
The adherence to property rights in this case is quite surprising. After all the Chinese government regards private cryptocurrencies largely as a means of money laundering, tax evasion, and illegal fundraising. However, for those who know China well it doesn't come as a surprise at all. The ambiguity is systematic.
China and crypto: a history of misunderstandings
Just as China has managed to stay officially communist while actually running a hyper-capitalist economy, it has managed to be the major economy with the strictest crypto policy while having one of the most active crypto communities. It might seem contradictory, but contradictions are exactly what the Chinese economy thrives on. It makes an inherently rigid bureaucratic system incredibly flexible.
The reasons why crypto is so popular in China are obvious: a repressive government, strict capital controls, and massive state surveillance. All this drives the need for immutable, privacy-oriented, and freely transactable assets. A Chinese friend and early crypto miner told me long ago “Chinese buy crypto because there is no other way to protect our assets. Also, everyone knows the stock market in China is manipulated and inefficient, house prices are already sky-high. How else can we invest and hope to generate wealth?”
However, generating wealth for its citizens is certainly not the main reason why China has tolerated crypto for quite a long time. The main goal of the government has always been to maintain control while at the same time staying open to new promising technologies. As Kai von Carnap, analyst at Europe’s biggest China think tank explains: “The government is happy to get all the ‘free’ expertise in crypto- and blockchain-related fields while also keeping its immense workforce of engineers busy”. Indeed, someone coding on Ethereum today might as well switch to government initiatives like China’s BSN or write smart contracts for the e-CNY.
Systemic ambivalence: 50 shades of grey (area)
This means that crypto never really had a chance to be legalized in China, but it also means that there is no reason for the government to completely kill it. Rather, regulators opt for an approach of repeated crackdowns to keep the mass of the people away from such undesired activity. At the same time, they still allow people to participate as long as they are not engaging in fraudulent activity or money laundering.
There is a system to this approach to new technologies and indeed the economy in general which is surprisingly unideological . This is what most people looking at China from the outside fail to understand. Coming as we are from rule-of-law-based societies where there is clearly defined what is allowed and what not, most Westerners hugely underestimate the flexibility of the Chinese system. They see a few bureaucrats in Beijing issuing strict directives and take those at face value. But the actual implementation is often a completely different thing.
The law in China is not there to always be followed to the letter, instead it is seen as a tool the
government can leverage when something grows out of hand. On the ground, local authorities often pursue a hands-off approach. It looks quite arbitrary from the outside, but it gives considerable leeway to entrepreneurs who know how to navigate the system. And one thing is for sure: Chinese entrepreneurs are masters of the grey area, they are already used to operate near the limits of legality since the very beginning.
The Author: Maximillian Mai lives in China (Chengdu, Sichuan) since 2016 and works as a full-time consultant and
entrepreneur in the blockchain/crypto industry since 2018. Currently he is working as co-founder and
Chief Business Development Officer at BerlinDAO (www.berlindao.com). BerlinDAO is a crypto
marketing agency that is driven by the DAO spirit and applies cutting-edge marketing methods to
make a difference for its clients in the crypto space.
Published November 2022