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Crypto Law/Level VIII · Around the world/8.3 Asia and the Gulf/Lesson 1

China: the ban and Hong Kong’s door

How mainland China moved from warning banks about bitcoin to treating almost every crypto business as illegal finance, and why Hong Kong, under a separate legal system, taxes and polices crypto very differently.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Hong Kong: profits from crypto bought and held as a long-term investment are capital and not chargeable, since there is no capital gains tax (IRD DIPN 39). Catch: intention at acquisition decides, and a business of trading or mining with Hong Kong-sourced profits is taxable.
  2. Hong Kong: use a platform on the SFC’s public list of licensed virtual asset trading platforms, not its list of suspicious platforms. Catch: the JPEX case, with over HK$1.6 billion of reported losses, shows the cost of using an unlicensed one.
  3. Mainland China: no lawful trading or platform route exists. Under Yinfa [2026] No. 42, conducting or facilitating virtual-currency business may bring criminal liability. Catch: offshore platforms serving mainland residents are also prohibited, so a foreign app does not create a lawful route.
  4. A Hong Kong licence covers activity in Hong Kong only and does not authorise serving mainland residents. Catch: tokenising Chinese assets through a Hong Kong vehicle needs CSRC filing and approval.

MaterialsThe Hong Kong Inland Revenue Department’s Departmental Interpretation and Practice Notes No. 39 (revised March 2020), section on digital assetsThe SFC’s public lists of licensed virtual asset trading platforms and of suspicious platformsA summary in English of the PBOC-led Notice of 6 February 2026 (Yinfa [2026] No. 42), noting that no official English version existsLesson 3.3.6, which explains Hong Kong’s licensing rules for trading platforms and stablecoin issuers

Wonder

  1. If crypto trading is illegal in mainland China, is it a crime simply to own bitcoin there?
  2. Can a Hong Kong company serve customers in Shenzhen just because Hong Kong licenses crypto platforms?
  3. Does Hong Kong tax a resident’s profit from selling bitcoin?

Explore

  1. Mainland China and Hong Kong belong to one country but run separate legal systems, so crypto law differs sharply across the border. On the mainland, the policy hardened in stages. In December 2013 the People’s Bank of China (PBOC), the central bank, barred financial institutions from dealing in bitcoin. In September 2017 a notice on fundraising risks from token issuance banned initial coin offerings, meaning sales of new tokens to the public, and the authorities moved against domestic trading platforms. Mining continued for a time and then became a target too. Hong Kong’s licensing system is covered in lesson 3.3.6; this lesson adds the mainland story, tax and enforcement.
  2. The decisive document of the last phase was a notice dated 15 September 2021 and published on 24 September 2021 (Yinfa [2021] No. 237), issued by the PBOC with nine other authorities, including the Supreme People’s Court and the Supreme People’s Procuratorate, the national prosecutor. It declared that exchanging fiat money for virtual currency, swapping one virtual currency for another, acting as a central counterparty, providing information or pricing services for trades, token-issuance fundraising and virtual-currency derivatives are all illegal financial activity. It also applied that analysis to overseas exchanges that serve residents of mainland China over the internet. Mining was being shut down in the same period.
  3. On 6 February 2026 the PBOC, the China Securities Regulatory Commission (CSRC) and six other authorities issued the Notice on Further Preventing and Addressing Risks Related to Virtual Currencies and Other Activities (Yinfa [2026] No. 42), which repealed the 2021 notice. It says bitcoin, ether and tether lack the legal status of fiat currency and must not circulate as money, and that conducting or facilitating virtual-currency business in China may lead to criminal liability. It prohibits anyone from issuing stablecoins pegged to the renminbi abroad without approval. It bans onshore tokenisation of real-world assets unless approved, but opens a filed and approved route for offshore issues backed by Chinese assets.
  4. Hong Kong has its own tax system and no general capital gains tax; its profits tax reaches only business profits sourced in Hong Kong. The Inland Revenue Department’s practice note DIPN 39, revised in March 2020, applies this to digital assets: profits from selling assets bought as long-term investments are capital and not chargeable, while profits from a business of trading, exchanging or mining cryptocurrency can be taxed if sourced in Hong Kong. The department says the intention at the time of acquisition is always relevant to whether an asset is a capital asset or trading stock, and crypto businesses must keep proper records. A frequent trader cannot simply call everything an investment.
  5. Hong Kong’s biggest enforcement case shows what its licensing regime was built to stop. In 2023 the Securities and Futures Commission (SFC) publicly flagged JPEX, a heavily marketed platform, as unregulated, and police began arrests in September 2023. On 5 November 2025 police charged 16 people, including the influencer and former barrister Joseph Lam Chok, with offences including conspiracy to defraud, money laundering and fraudulently or recklessly inducing others to invest in virtual assets under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. More than 2,700 people reported losses exceeding HK$1.6 billion. Interpol red notices were issued for three suspects believed to have left Hong Kong. The criminal proceedings were still pending in 2026.
  6. The border cuts both ways. A Hong Kong licence permits activity in Hong Kong; it does not authorise serving mainland residents, and the 2026 notice prohibits offshore entities from illegally providing services to people in mainland China. Commentators read this to cover marketing to and soliciting mainland customers. A mainland company that tokenises Chinese assets through a Hong Kong vehicle now needs CSRC filing and approval. A practical check: for any platform or project, write down where the customers are, which side of the border the assets sit on, which regulator licenses the activity, and whether the firm appears on the SFC’s licensed list rather than its list of suspicious platforms.

Key facts

  • China’s 2021 virtual currency notice, Yinfa [2021] No. 237, was published on 24 September 2021 by the People’s Bank of China and nine other authorities.
  • The 2021 notice classed fiat-to-crypto exchange, crypto-to-crypto exchange, token-issuance fundraising and virtual-currency derivatives as illegal financial activity in mainland China.
  • On 6 February 2026 eight Chinese authorities issued Yinfa [2026] No. 42, which repealed the 2021 notice and prohibits issuing renminbi-pegged stablecoins abroad without approval.
  • Hong Kong’s DIPN 39 (revised March 2020) treats profits from digital assets held as long-term investments as capital and outside profits tax.
  • Hong Kong police charged 16 people in the JPEX case on 5 November 2025.
  • More than 2,700 people reported losses of over HK$1.6 billion in the JPEX case.

Exercise nine, six, three, one

9CollectList up to 9 facts about a crypto platform or project you know: where it is incorporated, where its customers live, where its assets or reserves are held, and which regulator it names.
6ClusterSort them into 6 groups: mainland China connection, Hong Kong licensing, Hong Kong tax, marketing and solicitation, assets backing any token, and red flags.
3DistillReduce the 6 to 3 questions that would decide whether the activity is lawful on each side of the border.
1CrystallizeWrite 1 sentence explaining why a Hong Kong licence does not settle whether a platform may serve customers in mainland China.

Fact check

Dates, figures and claims checked against the published sources listed below.

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