China’s top prosecution body issues warnings and guidance on the country’s NFT market

NFT

China’s Supreme People’s Prosecutor’s Office, the country’s leading legal body, issued a series of warnings and advisories on non-fungible tokens (NFTs) on Monday, highlighting the risks posed by the country’s NFT markets, noting that there are new legislation is needed for the emerging asset class, and stating that NFTs share some features of virtual properties.

See related article: Chinese NFT platforms expand to Hong Kong due to mainland compliance risks

Quick Facts

• China’s current NFT market is in its early stages and lacks industry standards and government regulation, according to commentary published in the Procuratorate Daily, the agency’s official newspaper.
• NFT trading in China carries multiple financial and social risks, including price manipulation, illegal fundraising, scams and more, wrote Wang Xiao-fen, one of the article’s authors and a prosecutor. Wang noted that some of the so-called “NFTs” in the market are counterfeits and are not minted on blockchains.
• Despite the risks, the author acknowledged the potential of NFTs to boost the development of the country’s blockchain technologies and digital economy, citing a May 2022 State Council filing that envisioned a regulated market for trading in cultured based digital assets.
• “It is widely recognized that digital collectibles have the potential to protect intellectual property rights, boost content creation and enrich the digital economy,” Wang wrote, directing prosecutors to “find the distinction between genuine innovation and criminal activity. “
• The commentary is the latest in China and reflects growing government interest and concerns over NFTs while banning the mining and trading of cryptocurrencies.
• According to a March 14 State Administration for Market Regulation report, the agency received 59,700 NFT-related complaints in 2022, an increase of more than 300 times over the previous year. In November 2022, a court in the Chinese city of Hangzhou ruled that NFTs fall under the virtual property category and under the country’s e-commerce law.
• In April 2022, China’s Banking, Securities and Internet Finance Associations released a statement urging their members to curb the funding of NFTs, causing most regulated NFT trading venues to stop providing secondary trading services.
• However, according to the latest article, Chinese prosecutors have noticed the emergence of an underground secondary NFT market, where speculation continues unimpeded.
• 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 blockchain operators and authorities to be responsible for copyright protection in the NFT market, which is suffering from rampant copyright violations.

See related article: China’s Member of Parliament Proposes NFT Regulations at ‘Two Sessions’