Shanghai High Court: Crypto Recognized as Property Amid China’s Strict Business Ban
The Shanghai High Court has affirmed that cryptocurrencies hold "property attributes" under Chinese law, solidifying their status as virtual commodities. However, the court simultaneously reinforced the country’s stringent ban on commercial crypto activities, such as token issuance and speculative trading.
The ruling stems from a legal dispute between an agricultural development firm and an investment management company over a failed token launch. This case, adjudicated by the Songjiang District People’s Court, highlights the tension between China’s recognition of crypto as personal property and its strict crackdown on crypto-related business ventures.
The Dispute: A Failed Token Project
The conflict originated in 2017 during a cryptocurrency boom. An agricultural company, referred to as Company X in court documents, entered a "Blockchain Incubation Agreement" with an investment firm, Company S, to issue tokens and raise funds. For this service, Company X paid 300,000 yuan (approximately $41,000).
However, the tokens were never issued. Company S claimed additional costs for app development, which were not outlined in the agreement. Dissatisfied, Company X filed a lawsuit in 2018 to terminate the contract and recover its payment.
Court Ruling: Agreement Invalid
The court deemed the agreement invalid, citing China’s prohibition of token issuance as an illegal financial activity akin to unlicensed public fundraising. While both parties shared fault, Company S was ordered to refund 250,000 yuan to Company X.
The judgment underscored a key legal distinction: while individuals may legally hold cryptocurrencies as personal assets, using them for business purposes remains illegal. This reflects China’s broader policy aimed at preventing financial instability and criminal misuse of cryptocurrencies, including fraud and money laundering.
Implications for the Crypto Landscape
This case serves as a cautionary tale for businesses considering crypto-related ventures in China. Contracts that violate financial regulations risk being invalidated, leaving little room for legal recourse.
The judge emphasized that strict adherence to financial laws is crucial to avoid legal and financial repercussions. For entities navigating China’s legal framework, this ruling highlights the high risks of engaging in unauthorized crypto transactions or projects.
While the court’s acknowledgment of cryptocurrencies as property marks a nuanced perspective, China’s “high-pressure” approach to curbing speculative crypto activities remains firm, underscoring its commitment to maintaining financial stability.