Crypto trading and mining has been banned in China since
2021. Run used bank cards issued by small rural commercial banks to buy
cryptocurrencies through grey-market dealers, and capped each transaction at
50,000 yuan ($6,978) to escape scrutiny.
"Bitcoin is a safe haven, like gold," says Run.
He now owns roughly 1 million yuan worth of
cryptocurrencies, accounting for half of his investment portfolio, compared
with just 40% in Chinese equities.
His crypto investments are up 45%. China's stock market,
meanwhile, has been sinking for 3 years.
Like Run, more and more Chinese investors are using creative
ways to own bitcoin and other crypto assets that they believe are safer than
investing in crumbling stock and property markets at home.
They operate in a grey area. While cryptocurrency is banned
in mainland China and there are strict controls on capital movement across the
border, people are still able to trade tokens such as bitcoin on crypto
exchanges such as OKX and Binance, or through other over-the-counter channels.
Mainland investors can also open overseas bank accounts to
buy crypto assets.
After Hong Kong's open endorsement of digital assets last
year, Chinese citizens are also using their $50,000 annual forex purchase
quotas to move money into cryptocurrency accounts in the territory. Under
Chinese rules, the money can only be used for purposes such as overseas travel
or education.
China's economic downturn "has made investment on the
mainland risky, uncertain and disappointing, so people are looking to allocate
assets offshore", said a senior executive of a Hong Kong-based
cryptocurrency exchange, who declined to be identified due to sensitivity of
the topic.
Bitcoin and crypto assets have attracted such investors, he
said: "Almost everyday, we see mainland investors coming into this
market."
As retail investors make a dash for cryptocurrencies,
China's brokers and other financial institutions aren't far behind. Starved of
growth opportunities at home, many of them are exploring crypto-related
businesses in Hong Kong.
"If you are a Chinese brokerage, facing a sluggish
stock market, weak demand for IPOs, and shrinkage in other businesses, you need
a growth story to tell your shareholders and the board," said the exchange
executive.
The Hong Kong subsidiaries of Bank of China, China Asset
Management (ChinaAMC) and Harvest Fund Management Co are all exploring
businesses in the territory that deal in digital assets.
ILL-GOTTEN
Access to bitcoin isn't that difficult on the mainland,
according to Reuters' checks of online crypto exchanges and interviews with
retail investors.
Exchanges such as OKX and Binance still offer trading
services for Chinese investors, and guide them to use fintech platforms such as
Ant Group's Alipay and Tencent's WeChat Pay to convert yuan into stablecoins
with dealers, to trade cryptocurrencies.
OKX and Binance did not reply Reuters requests for comment.
Crypto data platform Chainalysis says crypto-related
activities in China have bounced, and its global ranking in terms of
peer-to-peer trade volume jumped to the 13th place in 2023, from 144 in 2022.
Despite being banned, the Chinese crypto market recorded an
estimated $86.4 billion in raw transaction volume between July 2022 and June
2023, dwarfing Hong Kong, which witnessed $64 billion in crypto trading,
Chainalysis said. And the proportion of large retail transactions of $10,000-$1
million is nearly twice the global average of 3.6%.
Much of China's crypto activity "takes place through
over-the-counters or through informal, grey market peer-to-peer
businesses," Chainalysis said in the report.
Brick-and-mortar crypto exchange stores, have sprouted in
Hong Kong's busy business and shopping streets. These offline shops are lightly
regulated.
At Crypto HK, a popular crypto store in the Admiralty
district, customers can buy cryptocurrencies with a minimum HK$500 ($64) and
are not required to provide any identity documents.
The underground crypto market in China is thriving.
Michael Wang, a dealer who helps individuals buy digital
assets, says daily volumes run into several million yuan or even dozens of
millions.
Charlie Wong, a 35-year-old buy-side equity analyst, bought
bitcoin via the Hashkey Exchange, an officially recognised marketplace in Hong
Kong.
"It is hard to find opportunties in traditional fields.
Chinese stocks and other assets perform poorly ... the economy is undergoing a
crucial transition," he said.
China's crackdown on the property sector over the past three
years has battered prices of homes, which were traditionally the mainstay in
household savings portfolios. The stock market has fared even worse, with the
benchmark CSI 300 Index (.CSI300), opens new tab down by half its value since
early 2021.
Bitcoin, by contrast, has leapt 50% since mid-October, and
is known for its wild swings.
Wong believes Chinese officials are cognisant of how
disruptive bitcoin can be and yet aware of its huge potential, and hence their
endorsement of crypto trading in Hong Kong, to keep a toehold in the crypto
business booming in financial centres such as Singapore and New York.
Hong Kong, though autonomously governed, is a Chinese
special administrative region.
Chainalysis reckons the developments "have created speculation that the Chinese government may be warming to cryptocurrency and that Hong Kong may be a testing ground for these efforts." Reuters
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