On September 24, 2021, China’s National Development and Reform Commission (NDRC) and nine other authorities jointly issued a Notice on Regulating Virtual Currency ‘Mining’ Activities (the notice) to restrict cryptocurrency mining activities in the country. On the same day, the Central Bank of China issued a new regulatory document on cryptocurrency trading.
The NDRC held press conferences regarding the notice and laid out two reasons for limiting cryptocurrency mining operations. The first is that such mining activities consume high levels of energy and emit high levels of carbon without making significant contributions to the country’s economy. Secondly, the risks of cryptocurrency production and trading, such as facilitating money laundering and tax evasion, are becoming increasingly pronounced in China.
The notice does not immediately prohibit all mining activities but issues several measures to rectify new and existing cryptocurrency mining operations.
Restrictions on Incremental Cryptocurrency Mining Activities
The new notice issues official, national-level specifications on cryptocurrency mining activities and restricts new investment in cryptocurrency mining activities. Article 7 of the notice adds cryptocurrency mining activities under the category of “obsolete” industries in the Industrial Structure Adjustment Guidance Catalogue (2019). The guidance catalogue consists of three categories — “encouraged,” “restricted,” and “obsolete” industries. A 2005 State Council document, titled Interim Provisions on Promoting Industrial Structure Adjustment, prohibits any new investment to obsolete industries. (Notice art. 19.)
The notice prohibits companies from naming their cryptocurrency mining businesses as “data centers.” (Art. 8.) It also strengthens the credit supervision of data center-type enterprises. (Art. 9.) Additionally, the notice prohibits anyone from supplying electricity for cryptocurrency mining enterprises. (Art. 10.) Local governments and financial institutions are also prohibited from providing new financial and tax support for such enterprises. (Art. 11.)
Phasing Out Existing Cryptocurrency Mining Activities
The notice calls for the “orderly phasing out” of existing cryptocurrency mining operations. (Art. 17.) It also provides that illegally supplying electricity for existing cryptocurrency mining will be investigated and sanctioned. (Art. 12.) The price for supplying electricity must be the same as the electricity tariffs provided under the obsolete category in the Industrial Structure Adjustment Guidance Catalogue (2019). (Art. 13.) The notice also orders local governments and financial institutions to phase out all existing financial and tax support provided for cryptocurrency mining companies. (Arts. 15–16.)
On May 21, 2021, the 51st meeting of the Financial Stability and Development Committee of the State Council announced a crackdown on bitcoin mining and trading activities in China. Moreover, several provinces have shut down cryptocurrency mining activities in the past year. For example, Reuters reported that Sichuan Province ordered on June 18, 2021, that cryptocurrency mining in the province be “screened, cleaned up and terminated.”
Prepared by Yunzhou Wang, Law Library intern, under the supervision of Laney Zhang, Foreign Law Specialist