China has implemented stringent foreign exchange (forex) regulations targeting risky transactions, including cryptocurrency trading, as part of its ongoing crackdown on the digital currency sector. The new rules, introduced by the State Administration of Foreign Exchange in December, are expected to further curtail the use of cryptocurrencies in mainland China.

Stricter Monitoring of Financial Transactions

Under the revised guidelines, banks are mandated to identify and report “risky foreign exchange trading behaviours.” These include underground banking, cross-border gambling, and illegal financial activities involving cryptocurrencies. Banks must monitor transactions based on the identity of parties, sources of funds, and trading patterns.

The measures also require banks to implement risk-control systems to limit services considered risky. This development provides regulators with an additional legal foundation to crack down on cryptocurrency-related activities, further reinforcing China’s anti-crypto stance.

Shanghai-based lawyer Liu Zhengyao commented on the regulations, stating, “It can be foreseen that mainland China’s regulatory attitude towards cryptocurrencies will continue to tighten in the future.”

A History of Crypto Crackdowns

China’s relationship with cryptocurrencies has been fraught with challenges. In 2017, the government banned all cryptocurrency exchanges and initial coin offerings (ICOs), forcing local crypto firms to move their operations overseas.

In 2021, the crackdown deepened with a ban on crypto mining in regions such as Sichuan and Xinjiang. Financial institutions were prohibited from offering crypto-related services, and overseas crypto platforms were declared illegal for Chinese residents. Despite these measures, China remains a key player in the digital currency world, particularly in the development of its central bank digital currency (CBDC).

Interestingly, while curbing public cryptocurrency activity, the Chinese government holds a significant amount of Bitcoin. With approximately 194,000 Bitcoins valued at around $18 billion, these holdings were accumulated through raids and seizures of illegal operations over the years.

This dichotomy highlights China’s cautious yet strategic approach to cryptocurrencies—minimising domestic risks while retaining value in digital assets.

Focus on the Digital Yuan

China is leading the global race to develop a central bank digital currency, the digital yuan. Piloted across various regions, the digital yuan has been tested in real-world scenarios, including retail payments and public transportation.

Although the government has yet to announce a full-scale launch, the digital yuan underscores Beijing’s ambition to establish a state-controlled alternative to decentralised cryptocurrencies like Bitcoin. This aligns with its broader goals of enhancing financial sovereignty and minimising exposure to speculative digital assets.

Implications for the Crypto Industry

The latest forex regulations reaffirm China’s tough stance on cryptocurrencies, discouraging their use within the country. With tighter controls on cross-border transactions, the measures are likely to make crypto trading more challenging for individuals and businesses in mainland China.

For the global crypto industry, China’s restrictions mean fewer opportunities within the Chinese market but also underscore the need for compliance in jurisdictions with strict regulatory frameworks.