China makes Crypto-Related Transactions Illegal

Sep 22, 2021

Chinese crypto holders are in free fall this week after the announcement by China’s central bank that all cryptocurrency-related transactions are illegal and must be banned. The bank has announced that Bitcoin, Tether and all other cryptocurrencies are not fiat currency. Not only may they be no longer circulated on the market, but all crypto related transactions are to be deemed illicit financial activities. The news has meant bitcoin has rapidly dropped today by as much as 5.5%. The move may well be perceived as another move by President Xi Jinping in his crack down on China’s wealthy under the guise of ‘common prosperity. This makes their complete ban of all crypto-related transactions entirely predictable. However, it is still shocking. It is in keeping with their march to wipe out all possible completion to the income E-Yuan.

Is it time for China’s wealthy to act?

The crypto news is the latest in a series of significant set backs to China’s independently wealthy. In August President Xi Jinping signalled a cry for action with an announcement of his suped-up plan for ‘common prosperity’. The speech has made titantic ripples across the spheres of China’s wealthy with its emphasis on ‘regulating excessively high-income groups’, and its insistence that businesses should plan to return more of their profits to society. As he heads towards his third term Xi has emphasized that ‘common prosperity is not just an economic objective. Rather it is central to the party’s governing foundation. His plans pledge to make solid progress towards the goal by 2035 – ‘basically achieving’ it by 2050… So there’s a lot of ground to cover! A senior party official has assured that  that “common prosperity” does not mean “killing the rich to help the poor”. However, many perceive Xi’s campaign is the latest attack on China’s richest businesspeople.

What exactly is China’s ‘common prosperity’ drive?

“Common prosperity”  is not a new concept in China. However, the increased pressure precipitated by Xi’s recent rhetoric, and the accompanying crackdown on excesses in various industries have rattled the cages of investors in one of the world’s largest economies.

The term “Common prosperity” was first coined by Mao Zedong in the 1950s. It was a cry to resuscitate a country existing in poverty. Deng Xiaoping reintroduced the phrase in the 80s – then in moves to modernise the economy.  Deng’s revisionist interpretation of the term called for an initial inequality: a move to allow select people and regions to get rich first. The idea was this would speed up economic growth, thus eventually helping to achieve the ultimate goal of ‘common prosperity’.

Under this regime China transformed into an economic powerhouse. Its hybrid mix of  “socialism with Chinese characteristics” certainly seemed to work in increasing economic growth in the country. However, it also created more distinct divides. Inequality deepened. This was most noticeable between urban and rural areas – and the extremity of this economic geographical difference is one that can threaten social stability.

Shenzhen, China

There have been huge divides between the urban rich and the rural poor

Xi’s more recent push for common prosperity has so far covered a range of policies including:

  • curbing tax evasion
  • limiting the on the hours that tech sector employees can work
  • bans on for-profit tutoring in core school subjects
  • limits on the time minors can spend playing video games

Looking forwards, the leadership plan to primarily use taxation to increase the number of middle-income citizens and boost the incomes of the poorest. They will do this by “rationally adjust(ing) excessive incomes”, and – notable considering the latest announced by the Bank of China – by banning anything conceived as ‘illegal’ incomes

There are also projections of long-talked-about but never actioned property and inheritance taxes finally being implemented.

All are equal, but some are more equal that others…

Of course reducing inequality in China, who has one of the highest Gini coefficients in the world, is – in theory – no bad thing. Historically cities have pushed out the poor in an attempt to make inequality less obvious. Xi has sought to rectify this with rural poverty alleviation campaigns. Government support has supplemented incomes for the most desperate. But is all this rhetoric shrouded in hypocrisy? The leaders of the CCP and their families are undoubtedly among the richest people in China. Unsurprisingly – this is a topic that registers as taboo! The Chinese media are totally silenced when it some to reporting on party wealth. So are the Communist Party only targeting billionaires that they’re not related to? This cry for ‘common prosperity’ is all well and good – but how plausible an idea is it for the CCP to sell when they’re nestled so comfortably in their ivory towers?

Uncertainty ahead – protect your assets – and your asses!

Inequality exists twofold in China. Firstly, of course, between the very rich and the very poor. And secondly between the governing rich and the entrepreneurial wealthy. Indeed the risk that accompanies being one of the non-endorsed wealthy is clear. A recent study uncovered that featuring on the Hurun Rich List just about triples your chances of being arrested or investigated. The recent propaganda and media surge attached to putting targets on the backs of UHNW under the guise of ‘common prosperity’ only intensifies this uncertainty. Criminalising Crypto investors seems to be the latest witch hunt. In light of today’s announcement – the real question is “What will all the Chinese crypto holders who hold it in foreign exchanges and or cold wallets do in response?” Time is running out for Chinese crypto holders to get a Backup Plan to protect their assets….and their asses! Our advice for anyone in this position is to act now to prepare for the uncertainty of tomorrow. If you would like to discuss the logistics of a backup plan get in touch for a no-obligation conversation.

How to Plan for Crisis in South Africa

How to Plan for Crisis in South Africa

In the first of our series of country-specific blogs, we look at how to plan for crisis in South Africa. In my 30 years as an international tax & immigration lawyer, I am very aware of the steady outflow of South Africans over that time. Indeed, I have advised...

read more
New Blog Series: How to Plan for Crisis

New Blog Series: How to Plan for Crisis

How to plan for crisis - a cautionary tale... I just finished watching a very provocative British tv series titled “Years and Years” which drove home the need for all to think about important global as well as national issues and plan ahead accordingly. And those with...

read more