China’s central bank declares victory in cryptocurrency crackdown ahead of the Communist Party’s national congress

The People’s Bank of China touted its success in curbing onshore transactions of bitcoin in a WeChat post on Monday
Beijing sees cryptocurrencies and NFTs as a threat to financial stability and completely banned related activities last year

Digital currencies

Yaling Jiangin Shanghai

Published: 9:30pm, 27 Sep 2022

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China’s central bank declared victory in cracking down transaction of virtual assets as part of the effort of maintaining financial stability on Monday, as preparations for the 20th Communist Party’s national congress enter their final stages.

The People’s Bank of China (PBOC), which regards cryptocurrencies as a potential threat to financial security and capital controls, is grappling with some of the most challenging economic conditions in the country in years, as growth has slowed to its lowest pace since the beginning of the pandemic under Beijing’s unwavering zero-Covid policy.

“[As we] continue to crack down on onshore transactions and the hyping up of virtual assets, the share of global bitcoin trades in China has largely dropped,” the bank’s Financial Stability Bureau wrote in a post to its official WeChat account. China’s proportion of global bitcoin trading dropped to 10 per cent from a peak of more than 90 per cent in 2017, the bureau said in March.

Along with the Financial Stability and Development Committee under the State Council, China’s cabinet, the bureau mainly provides preventive measures and solutions for systematic financial risks, according to its website.

Beijing has been tightening its grip on digital assets for years, including a 2017 ban on initial coin offerings – a type of fundraising ahead of a new cryptocurrency launch, similar to an initial public offering – a complete ban on cryptocurrency trading last year, and a ban in April on the use of non-fungible tokens (NFTs) as financial assets such as securities, insurance, loans and precious metals.

Still, China remains home to a lot of crypto-related activities.

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Is cryptocurrency too risky for China?

Mainland China re-entered the top 10 in Chainalysis’ Global Crypto Adoption Index this year. It was fourth in 2020, but fell to 13th place last year amid its cryptocurrency crackdown.

China saw a similar dip and re-emergence in bitcoin mining after cracking down on the activity starting last May, suggesting much of the related activity was temporarily driven underground. The share of bitcoin’s hash rate coming from Chinese internet protocol (IP) addresses fell to zero last year, before jumping back up to 20 per cent this year, according to the Cambridge Bitcoin Electricity Consumption Index.

Bitcoin was trading at about US$20,200 on Tuesday, down by nearly 70 per cent from its peak of more than US$67,000 last November.

Cryptocurrencies and peer-to-peer (P2P) lending, a way of obtaining loans without financial institutions, are both seen as threats to the centralised banking industry, which accounts for over 90 per cent of all financial assets, the PBOC said in its post.

In addition to the successful crackdown of P2P and virtual assets, the bureau also cited its achievements in seizing control and orchestrating the restructuring of troubled financial institutions including HNA Group in 2021, Baoshang Bank in 2020 and Anbang Insurance Group in 2018.

The bank also credited itself with turning around systemic risks from the so-called shadow banking system, which includes financial services such as loans from companies not covered by normal banking regulations. Shadow banking assets have fallen to 57 trillion yuan (US$7.97 trillion), 45 per cent of gross domestic product, by April, according to a report that month from credit agency Moody’s.

The party’s national congress kicks off on October 16. As of Monday, a published list showed 2,296 delegates slated to attend.