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Circular No. 237
") (《关于进一步防范和处置虚拟货币交易炒作风险的通知》), issued on 15 September 2021 by the People’s Bank of China and other central authorities.
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Pursuant to Circular No. 237, cryptocurrency-related business activities are classified as illegal financial activities, including, among others, cryptocurrency derivative trading, providing information intermediation and pricing services for cryptocurrency transactions, activities of exchanging legal tender with cryptocurrency, exchanging cryptocurrencies, acting as a central counterparty for buying and selling cryptocurrencies, and token issuance financing. Related marketing and sales activities are also prohibited. Within only one month after the promulgation of Circular No. 237, more than 10 cryptocurrency exchanges had announced their withdrawal from the mainland Chinese market. Under Circular No. 237, some local regulators have taken regulatory measures to target promotional websites or self-media platforms related to cryptocurrencies.
Currently, the regulatory attitude toward prohibiting digital currencies has not changed, although certain regulatory authorities have made forays into virtual asset trading (e.g. Shanghai Data Exchange issued the first data asset-backed financing instrument (RDA) on 25 November 2024).
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2. Cross-border business development: service model matters
In principle, any offshore entity that intends to conduct business in China must first obtain relevant approval/registration from the competent Chinese authority. This holds regardless of whether the business activity is an offshore transaction or is merely marketing to China-based clients, either directly or via an onshore agent or presence. Unfortunately, under the current Chinese regulatory framework, there is no such systematic licensing regime available for any offshore entity to market offshore services/products in China.
With respect to financial regulation, considering the investment nature which may be deemed as the financial business subject to the specific financial license in China, cross-border crypto-related services are generally prohibited without a license. In addition, Circular No. 237 defines any business activity that is related to virtual currencies as illegal financial activities, including virtual currency derivatives trading services and services provided by an overseas entity to Chinese clients.
Despite this prohibition on virtual currencies, Chinese regulators have not denied the legality of individuals (even companies) in China holding and trading virtual assets to the extent they do not act in violation of foreign exchange, fundraising, money laundering, or other laws or regulations. In fact, China has around 58 million cryptocurrency holders, second only to India, and even higher than the 45 million in the U.S.
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However, the relatively opaque legal status of virtual assets in China means Chinese law generally will not recognize or protect the rights of ownership in virtual assets or recognize virtual currencies as legal tender. Additionally, due to the practical limitations of enforcing Circular No. 237 in cross-border scenarios, the document is generally considered to set out general principles and regulatory positions on virtual currency-related cross-border activities, rather than providing a direct legal or regulatory basis for taking enforcement actions. Therefore, to the extent an offshore cryptocurrency exchange’s service model involves no proactive marketing within China, the Chinese regulatory risks due to engaging with Chinese citizens should be relatively lower in practice. The commonly-seen business models by offshore cryptocurrency service providers are discussed in Part III.
Part 3: Key issues involving China-related business development
1. Key opinion leaders and the online Chinese community
Considering the above Chinese regulatory principles, cryptocurrency service providers generally face certain risks if they directly conduct cryptocurrency marketing within China. Thus, the most-used approach to increase exposure is to post soft advertisements on self-media platforms or Chinese communities via key opinion leaders (KOLs) or media partners.
Major Chinese social platforms—including WeChat official accounts and Rednote—have rolled out stringent community guidelines to curb cryptocurrency marketing and promotions. The WeChat platform maintains arguably the most rigorous enforcement - accounts involved in virtual currency issuance, trading, or fundraising activities (such as providing transaction gateways, guidelines, or issuance channels) may be imposed with penalties such as corrective orders, access restrictions, or permanent bans. There are also potential regulatory risks against such marketing activities.
In light of the above, offshore cryptocurrency service providers that intend to market in China should attend to the following critical issues: (i) how to design the promotional content to avoid violating Chinese regulations; (ii) how to properly engage with onshore KOLs and media partners to reduce compliance risks and related contractual disputes. The resolution of these issues usually relies on cryptocurrency service providers establishing external user policies, content review and marketing vendor management mechanisms, as well as robust documentation with proper disclaimers.
