The Supreme People’s Procuratorate of China, the country’s leading legal agency, issued a series of warnings and opinions on Monday about non-fungible tokens (NFTs), highlighting the risks posed by the country’s NFT markets, noting new legislation is needed for the emerging asset class, and stating NFTs share some attributes of virtual properties.
See related article: China NFT platforms expand into Hong Kong in face of compliance risks on mainland
Fast facts
- The current NFT market in China is in its early stages and lacks industry standards and government regulation, according to the commentary published in the Procuratorate Daily, the official newspaper of the agency.
- NFT trading in China poses multiple financial and social risks, including price manipulation, illegal fundraising, scams, and more, wrote Wang Xia-fen, one of the authors of the article and a public prosecutor. Wang noted that some so-called “NFTs” in the market are fakes and not minted on blockchains.
- Despite the risks, the author acknowledged the potential of NFTs to boost the developments of the country’s blockchain technologies and digital economy, citing a State Council file in May 2022 that envisioned a regulated market for the trading of culture-based digital assets.
- “It’s widely recognized that digital collectibles have the potential to protect intellectual property rights, boost content creation and enrich the digital economy,” wrote Wang, who directed public prosecutors to “find the distinction between real innovation and criminal activities.”
- The commentary is the latest in China to reflect the government’s growing interest and concerns about NFTs, while banning the mining and trading of cryptocurrencies.
- According to a report by the State Administration for Market Regulation on March 14, the agency received 59,700 NFT-related complaints in 2022, a jump of more than 300 times from the previous year. In November 2022, a court in China’s Hangzhou City ruled that NFTs fall in the category of virtual property and under the country’s E-commerce law.
- In April 2022, China’s banking, securities and internet finance associations published a statement urging their members to curb financing for NFTs, which caused most regulated NFT trading platforms to stop providing secondary trading services.
- However, China’s public prosecutors have noted the emergence of an underground secondary NFT market, where speculation runs unchecked, according to the latest article, which added that more regulatory clarity is needed.
- Sun Shan, an academic at China’s Southwest University of Political Science and Law and co-author of the article, wrote that future legislation should require Chinese consortium blockchain operators and authorities to be responsible for copyright protection in the NFT market, which suffers from rampant copyright infringements.
See related article: China’s parliament member to propose NFT regulation at ‘Two Sessions’