Canada    FinTech Guide    Chapter 15    China


15. Initial Coin Offerings (ICOs)
China  China

Before the ICO Ban, the token, ICO and block chain once prospered and attracted many participants to the ICO and token issuance. After the ICO was required to cease by ICO Ban, some of the ICO platforms transferred their servers abroad and still provide a service to the Chinese. The whole social climate is not supportive to ICOs and issuance of token/coins. The ICO has ceased and the mining plants have also been requested to move.



Legal Affairs


In China, the legal currency is Renminbi. Further, it is expressly described in the applicable laws and regulations that bitcoin and other token is a virtual good and not a currency and therefore shall not be used and exchanged in the market as such. The financial institutions and payment service providers shall not price their goods and services based on bitcoin or other token, sell or purchase bitcoin/token, take insurance businesses relating to bitcoin/token or make any other financial arrangement by using bitcoin/token. On September 4, 2017, the Chinese government issued an announcement to prevent the risk relating to ICO and token based financing (“ICO Ban”). The ICO Ban stipulates that any ICO and token-based financing shall immediately cease and that it is prohibited for all token trading platforms to exchange tokens with the legal currency or to trade tokens for tokens (like tokens for bitcoin). A platform which violates the ICO Ban will be taken off from the App store. After the ICO Ban, the local financing authorities in the main cities of China issued relevant implemental provisions which require the token trading platforms to cease registration of new users, to return the payable tokens to permitted uses and to be shut down prior to a specific timeline. In summary, after the issuance of ICO Ban, ICO, the issuance of token/bitcoins and the trading of bitcoin or other tokens is strictly prohibited in China.

Restrictions: Currently, ICOs, or the issuance, distribution and/or transfer of token/coins are strictly prohibited in China. Therefore, after the issuance of ICO Ban, some ICO platforms transferred theirs servers abroad and the Chinese government also issued several risk warning notice regarding various disguised ICO financing and overseas ICO. From the foreign exchange perspective, the amount which the Chinese citizens could convert from RMB to foreign exchange is restricted (USD50,000 per person per year). Thus, theoretically speaking, the Chinese citizen are actually not free to remit the amount overseas to participate ICOs and token/coin trading on overseas platforms.

Token classification: It is expressly described in the applicable laws and regulations that bitcoin is a virtual good and not a currency and therefore shall not be used and exchanged in the market as such. Furthermore, the financial institutions and payment service providers shall not price their goods and services based on bitcoin, sell or purchase bitcoin, take insurance businesses relating to bitcoin or make any other financial arrangement by using bitcoin. Bitcoin, as virtual good, was recognized as an investment product previously. However, after the ICO Ban, token/coins is prohibited to be used to make ICO or token based financing.

Prospectus: There is risk to be deemed as being engaged in illegal ponzi-scheme and administrative penalty and/or criminal punishment may be imposed. The financing authority (People’s Bank of China, “PBOC“) is entitled to clamp down such illegal ponzi-scheme. If the event is serious and trigger criminal liability, the person who is in charge of such ponzi-schem will be imposed with the set term of imprisonment less than 10 years and the fine with the amount more than RMB 50,000 and less than RMB 500, 000.

AML/KYC: Before the ICO Ban, there was no specific AML/KYC requirement with respect to the ICO and transfer of tokens/coins in the regulatory history. After the ICO Ban, the ICO is prohibited so the AML/KYC is not applicable. Further comments After the ICO Ban, the ICO is prohibited and we understand that it is hard to develop business in this area in China legally.



Economic Conditions


Before the ICO Ban, there once were many ICO platforms and participants and most of the ICO platforms were based in Beijing, Shanghai and Guangzhou. A huge amount of citizens have participated ICOs in China. But after the ICO Ban, every ICO and token based financing are required to immediately cease. Currently, many platforms have moved the business overseas. In the market, although there is still some underground trading platforms and some users try to trade token/coins through overseas platform, the market within China has materially decreased.



Miscellaneous


After the ICO Ban, some of the ICO platforms transferred their servers abroad and still provide a service to the Chinese. We recommend that the investment decision in the ICO area in China should be made more prudently.



Contributing Authors

JunHe LLP

Norah Yinuo Zhang
Beijing, China

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Chapter Index:


1. Payment Services / Mobile Payment

2. Asset and Portfolio Management

3. Consulting and Broking Services / Robo-advisory / Auto-trading

4. Trading Platforms / Social Trading Platforms / Signal Following

5. Crowdfunding / Crowdinvesting / Crowdlending

6. Virtual Currency - Bitcoin

7. Loan Services / Factoring / Loan Broking / Finetrading

8. Online Banking Services

9. Analytics and Research / Data Management / Risk Management

10. Accounting

11. Identification

12. Online-pawning

13. InsurTech

14. RegTech

15. Initial Coin Offerings (ICOs)

Disclaimer:
The information in this guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: 1 May 2018