China would not be China if there weren’t ways to circumvent strict regulations. Ownership of crypto is still legal and legally protected. Most in the West greatly underestimate the flexibility of the Chinese system. Chinese entrepreneurs are masters of the gray area.
Wait a minute – hasn’t China banned everything related to crypto by now? Well, yes and no. The government has prohibited all services related to cryptocurrencies, e.g., trading platforms, promotion or sale, and even mining of cryptocurrencies.
After China has long been the largest and most vibrant crypto market in the world, today, an entire industry has seemingly disappeared. Apparently, however, is the keyword here. Because China wouldn’t be China if there weren’t ways to circumvent strict regulations.
Despite half a dozen bans on crypto-related activities, the government has never forbidden one thing, to actually own cryptos.
And if you can legally own something, then you also have the right to sell it to someone else. After all, it is legal property, and everyone can decide for themselves what to do with it. You only get legal problems if you try to set up a professional trade in cryptocurrencies.
Holding on to property rights may surprise some. Finally, the Chinese government sees private cryptocurrencies largely as a means of money laundering, tax evasion, and illegal fundraising. However, this is not surprising for those who know China well. The system has ambiguity.
China and Cryptocurrencies: A History of Misunderstandings
China is the only country in the world that has managed to remain officially communist while operating a hyper-capitalist economy. Likewise, the country has managed to be the largest economy with the strictest crypto regulation and at the same time one of the most active crypto markets.
That may seem contradictory, but Contradictions are exactly what the Chinese economy lives on. They make a naturally rigid, bureaucratic system incredibly flexible.
The reasons why cryptocurrencies are so popular in China are obvious: a repressive government, strict capital controls, and massive state surveillance. All of these drives the demand for immutable, privacy-focused, and freely transferable assets.
A Chinese friend and formerly Bitcoin-Miner told me a long time ago:
“ Chinese buy crypto because there is no other way to protect our assets. Everyone also knows that the stock market in China is manipulated and inefficient, and property prices are already immensely high. How else can we invest and hope to create wealth for ourselves? ”
However, creating wealth for its citizens is certainly not the main reason why China has long (semi) tolerated cryptocurrencies. The main goal of the government has always been to remain in control while remaining open to new, promising technologies. As Kai von Carnap, an analyst at Europe’s largest China think tank, explains: “ The government is happy to receive all of the ‘ free ’ expertise in cryptocurrency and blockchain-related areas, while keeping her huge number of engineers busy. ” Indeed, someone programming on Ethereum today might as well switch to government initiatives like China’s BSN ( Blockchain Service Network ) or write smart contracts for the e-CNY.
Systematic ambivalence: 50 Shades of gray area
This means that cryptocurrencies in China never really had a chance to be legalized. But it also means there is no reason for the government to ban them completely. Rather, the authorities have opted for a repeated crackdown approach to keep the mass of the population away from such undesirable activities. At the same time, they allow some people to play along as long as they do not get involved in fraudulent activities or money laundering.
This approach to new technologies and the economy, in general, has a system and is surprisingly unideological. That is what most people who look at China from the outside do not understand.
Since we come from constitutional societies in which the constitution clearly defines what it allows and what it doesn’t, most in the West greatly underestimate the flexibility of the Chinese system. You see a few bureaucrats in Beijing who enact strict regulations and take it at face value. However, the actual implementation is often a completely different matter.
The law in China is not there for citizens to always follow to the letter, they see it as an instrument in the hands of the government. It is often only used when something gets out of hand. In practice, local authorities often turn a blind eye. From the outside, this looks pretty arbitrary, but there is considerable scope for entrepreneurs who are familiar with the system. And one thing is certain: Chinese entrepreneurs are masters of the gray area.
They have long been used to operating on the border to legality, after all, all private business in China was illegal until the beginning of the reform period.
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