Key Points:

  • China issued new rules restricting virtual currency trade
  • Online gambling and lotteries are prohibited

On June 4, 2009 China’s Ministry of Culture and Ministry of Commerce jointly issued a notice aimed at restricting the use and trading of virtual currencies (the “Notice”). Virtual currencies are banned from being traded as “real” goods and services, and one company may not issue and trade virtual currencies at the same time. The Chinese government defines “virtual currency” to include prepaid cards, game currencies and game points of online games, but excludes costumes and weapons used in the games.

China is one of the world’s largest markets for multiplayer online games, and many game players in China are involved in trading virtual currencies for “real” goods or cash. According to the China Internet Network Information Center, the total number of online game players in China reached 18 million by the end of 2008, which is an increase of 50% over 2007. Virtual currencies traded at a value of about RMB10 billion to RMB13 billion in 2008. As the trading of virtual currencies has become more active, and due to the absence of sufficient supervision, there has been a significant increase in disputes. Furthermore, with the rapid development of virtual currencies, some experts are concerned that they will have a negative impact on China’s real financial/currency system. In 2007, 14 governmental authorities led by The People’s Bank of China issued the Notice Enhancing the Supervision of Internet Bar and On-line Games, which prohibits the trade of virtual currencies for “real” goods.

According to the Notice, virtual currencies are only allowed to be traded for virtual goods and services provided by the currency’s issuer, not real goods and services nor virtual goods and services provided by other companies. Also under the new rules, using virtual currencies for gambling and lotteries is prohibited.

The Notice also aims to set certain standards for companies engaged in virtual currency trade activities in order for the government to strengthen supervision. For example, the Notice requires all companies involved in virtual currency trade activities to register with the local Cultural Affairs Bureau within three months of establishment.

Some observers believe that the issuance of the Notice and tightening the supervision of virtual currencies may have a big impact on companies running a virtual currencies trade business and their revenue may drop significantly unless they can find new ways that are legal to bring in new revenue. Some commenters believe that this Notice is just the beginning of the Chinese government enhancing the supervision of online games, and the government may issue more laws and regulations in the future.