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COMPARATIVE GUIDES

Blockchain

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China - Global Law Office
Answer...

In China, blockchain developers should consider the following regulatory regimes and issues:

Cryptocurrencies Regulation. Cryptocurrencies are strictly prohibited in China. Specifically, Blockchain-related applications in cryptocurrency mining, trading, and ICOs are all declared illegal in China. Therefore, it is almost impossible for blockchain developers to issue blockchain-related tokens with monetary value or other securitized products in China. Blockchain developers should be alerted and guard against any monetary tokenization of their applications which could be regarded as illegal financial activities by the regulatory bodies.

Internet Information Services Regulations. Providers of information services to the public through the Internet, Apps and other forms using blockchain technology will be subject to the regulatory mechanism on the Internet information service. Specifically, blockchain information service providers shall ensure the security of information content, equip themselves with technical measures appropriate to their services, conduct real identity authentication, formulate and publish their management rules and platform conventions, etc. As a generally applied administrative obligation, they also need to file the services provided with the competent authorities for records.

In addition, when building a governance framework, blockchain developers should also consider the data protection and privacy regulations, the intellectual property regulations, the anti-money laundering (AML) and know-your-customer (KYC) regulations, tax regulations, consumer protection regulations, environmental, social, and governance (ESG) goals and requirements, etc. to ensure compliance and user protection.

China - Global Law Office
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In the current practice in China, private chains are used more frequently than public chains, in both the public and private sectors, because private chains are subject to autonomous, or centralized, management in terms of business operation and risk control by the operators. Because the Chinese law imposes the same obligations upon businesses run on the pubic blockchains and the private blockchains, although developing and launching a private blockchain may be more costly, it is more efficient, less resource intensive and has simpler consensus algorithms, to operate than the public chains, which means cheaper, in terms of compliance risk management.

China - Global Law Office
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Using a blockchain or a distributed ledger protocol is not risk free. Users should firstly determine whether the blockchain service they are using is a lawful blockchain service. For example, if the blockchain service is a service that creates, exchanges or support use of cryptocurrencies, it is illegal service and use of such a service is not protected by the Chinese law.

If the blockchain service is a lawful service, users should then understand whether any law imposes any legal obligation upon them when they use the blockchain service. For example, if the users are using a blockchain service to share information to the public, the users should understand that they should not share contents prohibited by the law through such a service.

Finally, the users should ascertain their rights and obligations under the contracts with the blockchain service provider so that they can better protect their own interests, such as personal information, in using the service.

China - Global Law Office
Answer...

In China, there is no special regulation on the blockchain as a technology yet, but some services using blockchain or other technology are regulated. Examples of such services include telecommunication, eCommerce, content monitoring, cryptocurrencies and financial services, and etc. The regulators of the above services include the Ministry of Industry and Informatization (MIIT), the Cyberspace Administration of China (CAC) and the People’s Bank of China (PBC), the State Administration for Market Regulation (SAMR), and the police.

MIIT

The MIIT oversees the telecommunication and information technology industry in China and is the regulator of blockchain technology development. It is also responsible for industry regulation and has released several industrial policies supporting combining the blockchain technology with other services. It is also responsible for formulating technical standards for blockchain technology and its applications.

CAC

The CAC focuses on the supervision of content services and data businesses that leverage the blockchain technology. It is responsible for record-filing and regulating information service providers which use blockchain technology. It also has the general responsibilities to protect data in a broad sense (including personal information), conduct cybersecurity review, data cross-border transfer security assessment and the China Standard Contract filing.

PBC

As China’s central bank, the PBC has been very active in maintaining financial stability and controlling the financial risks associated with cryptocurrencies. Since 2017, the PBC (alone and jointly with other regulators) has issued several announcements and notices determining blockchain application associated with cryptocurrencies being illegal.

China - Global Law Office
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The regulators’ general approach to blockchain is that they ban any attempt to connect the technology directly and indirectly with cryptocurrencies, it is cautious about the application of the technology in content services, but it welcomes the application of the technology in other industrial areas.

China has launched various initiatives aimed at promoting the use of blockchain and DLT in industrial and commercial application. The central and local governments released thousands of policies and documents that encourage integration of blockchain technology development and implement business application of this technology in various industrial sectors.

However, the regulators keep a close watch on the blockchain application in the financial and content services industries. The PBC has concerns about the financial risks arising from blockchain and financial derivatives based on blockchain technologies, and has issued a series of announcements and risk warnings in past years. The CAC, through record-filing and security assessment, conducts its regular supervision on those blockchain-technology-backed content services. As of mid-March 2023, more than 3,000 blockchain-technology-backed information services have been filed, but some filed services have been found to be involved in virtual currency mining or other reasons and have been cancelled, according to the official news from the CAC.

China - Global Law Office
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Among various blockchain trade associations and self-regulatory organizations in China, the China National Blockchain and Distributed Ledger Standardization Technical Committee and the Blockchain Technology Application Working Committee of the Internet Society of China are better known.

The former is an unincorporated technical organization established under the guidance of the MIIT to carry out standardization work in the field of blockchain and DLT and is composed of officials from national and local government sectors, professors from universities and research institutes, and leaders of well-known technology companies. The latter is a secondary working committee under the Internet Society of China, established at the end of 2020, whose members come from well-known Chinese technology companies, telecommunication companies or research institutes. According to public information, it is mainly responsible for conducting research on blockchain technology applications, organising a series of salon activities on blockchain technology applications, building a knowledge system on blockchain technology applications, organising member units to develop blockchain-related group standards and carrying out work related to technical training and talent training on blockchain.

China - Global Law Office
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Because most of the blockchains in China are private chains and consortium chains, Ethereum protocols and Hyperledger fabric seems more popular.

China - Global Law Office
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Please refer to our response to Question 2.3 below.

China - Global Law Office
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Distributed Ledger Technology (DLT) has been applied to a variety of sectors and has become a fast-growing engine in China over the last few years, especially in financial services (including traditional banking, online banking and electronic payments processing), public sectors or government administration, judicial evidence collection, energy, and supply chain management. China further builds a Blockchain-based Service Network (BSN) as China’s Web 3.0 infrastructure to develop an international blockchain network without adoption of any cryptocurrency.

Different from the rest of the world, China government has been actively promoting blockchain technology and invest heavily in research and development of blockchain technology.

Financial service is the sector that adopts the use of DLT the earliest in China and is also the sector where the use of DLT has been most widely explored. Almost all large banks and Fintech companies in China have been actively deploying DLT in the fields of supply chain financing, trade financing, fund management, and transaction processing. For example, in trade financing area, the PBC, the central bank of the PRC, initiated a joint effort with listed companies to build a blockchain platform for trade financing, aiming to use the transparent and immutable properties of blockchain to promote the development of a trade financing supervision system.

Blockchain-enabled internet of things (IoT) solutions for tracking and managing data are widely used in sectors such as smart cities, agriculture, and logistics.

In public sector, the Chinese government has heavily invested in and encouraged the development of private or consortium blockchain applications and services in areas such as judiciary and administrative management. One of the most mature applications is the judicial blockchain. Judicial blockchain systems used by the courts of Beijing, Hangzhou, Guangzhou and other cities are providing support for digital evidence storage, authentication, the automation of contract execution and the smart court management system.

China - Global Law Office
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Blockchain is highly regarded as a promising technology in China, and its development attracts special attention and is particularly encouraged by the Chinese government. This started with a reference in a CPC Central Committee Political Bureau conference in 2019, emphasising that blockchain, as a core technology, should be seen as an important breakthrough for self-innovation.

In the 14th Five-Year (2021–2025) Plan published in March 2021, the Chinese government sees blockchain as one of the promising emerging digital industries and envisions that consortium blockchain should be adopted as the infrastructure to develop application solutions for the blockchain service platform, Fintech, supply chain financing, administrative governance and services. As follow-up to the 14th Five-Year Plan, the Ministry of Education released the Blockchain Technology Innovation Action Plan of Higher Education Institutions (Action Plan), and the MIIT, together with the CAC, jointly released the Guiding Opinion to Accelerate and Promote the Technical Application and Industry Development of Blockchain (Guiding Opinion). The Supreme Court issued the Opinion on Strengthening the Judicial Application of Blockchain (Opinion). The Action Plan, the Guiding Opinion and the Opinion will serve as the foundational documents that will influence the development of blockchain technology and its application in the next five years.

In addition to the above key central government policies, as of September 2022, around thirty China’s local governments have included the development of blockchain technology in their 14th Five-Year Plan, and a total of 319 industrial policies related to blockchain have been issued, covering various industries or fields such as public data sharing, finance, supply chain and logistics, healthcare, agriculture, etc., according to a latest report published by a research institution affiliated with the MIIT.

China - Global Law Office
Answer...

Cryptocurrencies and/or virtual currencies are generally viewed with suspicion by the Chinese government, which has taken a firm and assertive stance against their use and circulation. In 2013, the PBC issued a statement characterising for the first time that bitcoin is not a currency and is therefore not recognized as a legal tender in China. This effectively means that bitcoin and other cryptocurrencies are not legally protected currencies in China. On May 18, 2021, three official associations jointly issued a notice reaffirming that virtual currency, as “a specially designated virtual commodity”, does not possess the same legal status of a statutory currency.

However, the administrative prohibition seems not depriving the property value of the virtual currencies as a type of virtual asset. In judiciary practice, courts hold diverse opinions on complex issues arising from cryptocurrencies-related practices, and the nature of virtual currencies is fraught with controversy. In civil cases, claims in relation to unjust enrichment of virtual currencies may be upheld (See (2018)川1181民初488号; (2018)京02民终7176号); despite decisions to the contrary (See (2018)鲁01民终4976号), there are still courts that have held that contracts for the sale and purchase of virtual currencies, as well as contracts for the sale and purchase of mining machines used to produce virtual currencies, are valid and legally binding (See (2020)京民终747号; (2021)沪01民终11624号). In criminal cases, convictions of illegal theft of virtual currency are premised on the recognition of the property nature of virtual currency.

China - Global Law Office
Answer...

As for anti-money laundry related approach against cryptocurrencies, before the ban, all branches of the PBC shall include financial institutions, payment institutions, and internet sites that provide bitcoin related services like bitcoin registration under anti-money laundering supervision. Such institutions shall immediately report suspicious transactions related to bitcoin and other virtual currencies to the China Anti-Money Laundering Monitoring and Analysis Center and cooperate with the anti-money laundering investigation activities of PBC. Since the cryptocurrencies are now banned in China, cryptocurrency transactions are illegal transactions, and there is no need to further analyze whether there is any anti-money laundry concern.

China - Global Law Office
Answer...

The Chinese government has taken a strict stance on cryptocurrencies to protect consumers from financial risks and fraud. On September 15, 2021, the PBC, CAC, and another eight authorities jointly released the Circular on Further Preventing and Disposing of Risks in Virtual Currency Trading and Speculation. The Circular further emphasizes that investment by any legal person, unincorporated organization and natural person who invests in virtual currencies and related derivatives should be null and void, and the losses arising therefrom should be borne by those investors. If the investment is suspected of disrupting financial order and endangering financial security, the party concerned should be investigated and punished by relevant authorities according to the law.

The above provision is a clear signal that, as the crackdown on virtual currency trading deepens, investors or consumers of virtual currencies are on their own for investments and losses arising from their investments. They will not be protected by Chinese laws and regulations regarding consumer protection or financial consumer protection.

China - Global Law Office
Answer...

Referring to our response to Question 3.2, given that there is no room left in China for cryptocurrencies, China's tax regime does not intentionally consider the tax items and rates related to the issuance and circulation of cryptocurrencies, nor does China have any specific tax laws and regulations with regard to cryptocurrencies.

In September 2021, the national tax authorities ordered to stop all tax support for virtual currency “mining” projects and no longer allow local governments to grant tax support for such projects, and those that have been granted tax incentives need to be cancelled by a deadline.

China - Global Law Office
Answer...

The PBC prohibits blockchain from being used in any way relating to virtual currency trading. The prohibition on the use or trading of cryptocurrencies in China is rigorous. Specifically, virtual currency-related business activities are illegal financial activities. Carrying out exchange services between legal currencies and virtual currencies or between virtual currencies, buying and selling virtual currencies as a central counterparty, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, virtual currency derivative transactions and other virtual currency-related business activities are suspected of illegal sale of tokens, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising and other illegal financial activities, which shall be strictly prohibited and banned in accordance with the law.

Provision of services by an overseas virtual currency exchange to a Chinese residents via the Internet is also illegal. Investment transactions involving virtual currencies are subject to scrutiny, and public interest risks and legal risks should both be considered.

China - Global Law Office
Answer...

China's financial supervisory authority, PBC, has banned ICO since 2017 and has been strengthening its supervision against cryptocurrencies continuously.

In accordance with the Announcement on Preventing Initial Coin Offering (ICO) Risks released in 2017, ICO related activities, especially for selling of virtual currencies such as bitcoins and Ethereum to investors are prohibited.

In 2021, the authorities further their regulatory action by posing even stricter bans on cryptocurrencies. In April 2021, China Internet Finance Association, together with two industry associations, issue the Announcement on Guarding against the Speculative Risks of Virtual Currency Trading (Announcement). The Announcement stated that, illegal sale of tokens, unauthorized public issuance of securities, illegal operation of futures business, illegal fundraising and other illegal financial activities shall be strictly prohibited.

On September 15, 2021, PBC, together with nine government agencies, further issued the Circular on Further Preventing and Disposing of Risks in Virtual Currency Trading and Speculation, prohibiting virtual currencies such as bitcoin, Ethereum, and USDT circulating in the market as currencies. The Circular clearly determines the services that are provided by an overseas virtual currency exchange as illegal financial activities.

China - Global Law Office
Answer...

The mainstream view about the smart contract is that it is likely as an automated process to verify the terms of or supplement to a traditional contract in the legal sense, but it cannot serve as the replacement of the traditional contract.

Many scholars think that smart contract does not satisfy the legal requirement of a legal contract, because it prevents contracting parties reach a consensus after fully negotiation, as the smart contract is a pre-programed automated process. However, some people have the opposite opinion. A draft national standard entitled Information Technology - Blockchain and Distributed Ledger Technology – Smart contract implementation specification provides in its Article 3.1 that smart contract can represent a legal contract term and impose enforceable obligations in application jurisdictions.

However, whether a smart contract can be considered a contract in the legal sense is still an open question. The traditional legal definition of a contract places more emphasis on an "agreement" of the human being, but smart contracts are driven by computing automation. It is appropriate to consider smart contracts as an automated process to verify the terms of a contract, but it seems too early for China to equate it with a legally recognizable contract.

China - Global Law Office
Answer...

There is no official definition for smart contracts under the Chinese legal framework. In essence, a blockchain smart contract is a piece of code written on a blockchain. It is technically understood that a smart contract is a computer protocol that disseminates, validates or executes a contract, which is embodied in the blockchain as an automated computer program. Such a concept is confirmed in the recommended national standards Information security technology - Security specification for information service of Blockchain (draft for comments) and Information technology – Blockchain and distributed ledger technology – Smart contract implementation specification (draft for comments).

China - Global Law Office
Answer...

Under the current Chinese legal regime, traditional contracts might be replaced by smart contracts in the following parts in the future:

  • Performance. Smart contract can monitor the performance of obligations during the whole course of contract performance. For example, in IoT devices that are embedded with sensors, if the devices are detected with error, the smart contract can automatically stop the operation or impose penalties according to the agreements between contracting parties.
  • Proof retention and dispute resolution: Smart contracts can provide a transparent and immutable record of contract terms and actions, which can help reduce the costs and uncertainties of traditional litigation or arbitration.

The Chinese court system is keen on the application of blockchain and smart contracts. The Supreme Court promulgated the Provisions on Several Issues Concerning the Trial of Cases by Internet Courts, which came into effect since 7 September 2018. According to this document, blockchain and other similar technologies can be used to authenticate evidence in legal disputes in China.

It’s important to note that currently the smart contract is unable to replace traditional contract in all respects under the current laws. Currently, smart contract is used in very limited scenarios in China, mostly in judicial adjudication practices by the judges and other persons handling the case.

China - Global Law Office
Answer...

Under the current law of the PRC, smart contracts can not replace any part of the traditional contract, as smart contracts are deemed from legal perspective as more of a verification or authentication process than a legal document. See details in our response to the question above.

China - Global Law Office
Answer...

There has been no judicial enforcement cases of any smart contracts in China. Therefore, it is premature to discuss the issues in smart contracts enforcement.

China - Global Law Office
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Since the smart contract is deemed more of an evidence verification or authentication process in China, preferably such a process should be conducted on the judiciary blockchain which is a private blockchain built by the Supreme Court and the Internet Courts of the PRC. If the process is conducted on a third party private or consortium chain, the process will be subject to the judicial examination by the court pursuant to the rules regarding the electronic evidence authentication which is a complicated process to go through.

China - Global Law Office
Answer...

There is no public blockchain in China, so there is no such a question.

China - Global Law Office
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The followings are some challenges for blockchain under the current legal regime:

  • Difficulty in responding to the personal information subject’s request to amend, delete, and erase their personal information. Immutability is one of the most prominent features of blockchain technology, which is in conflict with the above individuals’ rights under PIPL;
  • Difficulty to comply with the minimum and necessity principle in processing personal information. Blockchain technology is known with its completeness and permanency to store information in all circumstances. However, when personal information is recorded in the ledger, it will encounter challenge from the personal information protection laws because processing personal information is subject to a time limit corresponding to the processing purpose, but deletion of the personal information from the ledger is not possible.

China - Global Law Office
Answer...

Notwithstanding the above challenges, the potential advantage blockchain can offer in the data protection/privacy context may include the following:

  • Data security. Advanced encryption algorithms that are used in blockchain may help with the security of personal information stored in the distribute ledgers.
  • Data integrity. Data is stored on a distributed network of nodes. Such a design can help ensure the quality of the data processed in the blockchain.
  • Data transparency. Theoretically, personal information processing on blockchain is visible by all participants on the chains. This is more transparent in a centralized processing which is only visible by a small group of people with the processor.
  • Processing consistency. On blockchain, smart contract is a new possibility which can ensure that processing by different participants of the same data following the same terms and conditions defined in the smart contract.

China - Global Law Office
Answer...

The challenges or concerns about blockchain in terms of cybersecurity are mainly on the security measures:

Blockchain is not immune to security attacks. In fact, blockchain can be vulnerable to network attacks if the attacker gains control of sufficient computing power in the network, and, as a result, the attacker can then manipulate transactions on the network.

To prevent such a situation, consistent security measures need to be deployed and upgraded from time to time for the whole blockchain network. Decentralized structure creates security governance challenges. Operation in such a structure has compliance concern. The Cyber Security Law of the PRC provides networks that are operating in China should be properly managed by the operator of the network, and the operator should take the full responsibility for operating the network. Such obligation is hard to fulfil in blockchain operation.

China - Global Law Office
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The cybersecurity advantage of blockchain from legal perspective is its diversity. The public chain, the consortium chain and the private chain can be put together to deploy different security strategies to meet different legal requirement.

China - Global Law Office
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From legal perspective, mapping the security requirements and leveraging the use of consortium chain and private chain may be good approach to meet the security obligations.

China - Global Law Office
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Blockchain presents a few challenges from an IP perspective in China, which are similar to many other countries:

  • Blockchain may be used illegally to misjudge the originality of the work. Blockchain can be applied to prove a piece of work is new. But, if some people steal works from the author, and upload to a blockchain platform, the platform is unable to properly verify whether those works are created by the platform user.
  • Privacy and data protection: Blockchain technology, especially those relying on public chains, may not be suitable for certain types of IP assets that require strict privacy and data protection. There is a risk that sensitive information may possibly be exposed on a public blockchain.

China - Global Law Office
Answer...

  • Patents: Blockchain developers can obtain patents for new and innovative blockchain technologies, such as consensus mechanisms, smart contract systems, and tokenization methods. Patents can provide strong protection for these innovations and can help developers prevent others from using their inventions without permission.
  • Copyrights: Blockchain developers can obtain copyrights for the code and software that they develop. Copyrights can provide protection against copying or unauthorized use of the code.
  • Trademarks: Blockchain developers can obtain trademarks for their company name, logo, and other branding elements. Trademarks can help protect the developer's brand identity and prevent others from using similar names or logos.
  • Trade secrets: Blockchain developers can protect their innovations through trade secret laws. This includes keeping their technology secret and taking steps to prevent others from reverse-engineering or copying their innovations.

China - Global Law Office
Answer...

In China, there are many open-source platforms that can be used by developers to protect their source codes and innovations, including but not limited to:

  • OPENATIM FOUNDATION
  • Mulan opensource.
  • OSCHINA

All of them offer services to protect developers’ innovation in strict confidence, but now it’s hard to elect the best platforms among them.

China - Global Law Office
Answer...

Blockchain technology, due to its immutable feature, transparency and decentralization structure, can be applied to protect IP in China, particularly in the consortium chains or the private chains. For example, IP owners can store their IP assets on the blockchain services to keep a tamper-proof and immutable record that cannot be altered. Blockchain can also make the transaction of IP products cheaper, because the blockchain platform is able to provide a fast, and secure environment to transact IP products automatically and securely. Consortium chain platforms accepted by the court can simplify the evidence authentication in IP disputes.

China - Global Law Office
Answer...

The regulatory landscape on blockchain technology is on the businesses adopting the technology, not on the technology itself. In the next two years, it is foreseeable that the national standards and administrative policies on the technology itself will emerge and guidance and encouragement to the technology will deep dive to the specific business scenarios rather than on the concept development as it is happening right now.

China - Global Law Office
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The current regulatory strategy focuses on blockchain is on don’ts, such as prohibition of the cryptocurrencies, ICOs, other illegal fundraising, pyramid schemes, frauds and illegal contents. We would like to see that regulatory policies could provide more dos to identify the space for innovation.

The current regulatory strategy encourages on consortium chains and private chains and disfavour the public chain. Given the fact that the rest of the world are developing more applications and innovations on the public chain, to promote better alignment and alliance in technology exchange, we would like the future regulatory strategy allows the pubic chains in designated areas.

We would look forward to seeing more administrative policies and guidance defining the specific applications and their operators’ rights and responsibilities, including the IP protection, smart contract’s legal status under the law, and solutions to solve the conflicts between personal information protection and blockchain technology.

China - Global Law Office
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As a technology with the feature of decentralization, if the regulatory authorities could provide more clear guidance on safe space for innovation and business use cases, it would give more confidence to the people in the fields to be more creative and passionate to adopt the technology.

China - Global Law Office
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The top tip to effective use of the technology in China is that the development of the technology and the use cases should focus on the consortium chains and private chains. The design the business and operation model of the consortium chains and private chains should consider the existing regulation of the use cases.

As to the sticking points, businesses attempting to adopt the technology in a specific business case should seek regulatory compliance advice in well advance after the business model design matures but before any substantial development stars to ensure the design and operation of the business model complies with the existing regulatory requirements for the businesses. In addition, after the adoption of the blockchain backed businesses, the operator should continue watching the regulatory changes and evaluate whether any timely technical or operational changes is necessary for continued compliance with the law.

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