In an August judicial review, the Supreme People’s Court and the Supreme People’s Procuratorate said that cryptocurrencies, online game coins and tipping during live streaming would be considered money laundering in China. This is a significant step, marking the first instance of Beijing revising its laws to target the use of cryptocurrencies. China’s top judicial bodies said that the transfer and conversion of criminal proceeds and their benefits through digital asset transactions and financial asset exchanges would be covered under regulations that prohibit “covering up and concealing the source and nature of criminal proceeds and their benefits by other means.”
We suspect that Beijing is taking this step not only to crack down on actual money laundering –the concealment of the origins of illegally obtained money – but also to reenforce existing capital controls. China is facing a tough economic situation with significant capital outflows despite the difficulty of getting money out of the country. In 2023, US$68.7 billion of corporate and household capital left the country, according to government data. The true number could be higher. In April, capital outflows hit their highest level since 2016.
Meanwhile, crypto is reportedly playing a role in trade between China and Russia, despite Beijing’s tight restrictions on digital assets. Bloomberg reported in May that Russian commodities firms struggling to execute financial transactions with Chinese counterparts have started using stablecoins to settle deals. At least two top metals producers, both of which are unsanctioned, have begun to use Tether and some other digital assets to settle some of their cross-border transactions with mostly Chinese clients and suppliers, Bloomberg said, declining to name its sources. In some cases, the settlements go through Hong Kong.
In late July, Russian lawmakers passed a bill that will allow businesses to use crypto currencies in international trade, as part of efforts to eschew Western sanctions imposed after Moscow’s invasion of Ukraine. The law is expected to go into force in September. Russian central bank Governor Elvira Nabiullina, a supporter of the new law, said the first transactions in cryptocurrencies will take place before the end of the year.