China is developing an NFT market "with Chinese characteristics". NFTs are referred to as "digital collectibles" or "distributed digital certificates" (to avoid any association with cryptocurrencies, banned in China). They are minted on private or "open permissioned" blockchains, and are purchased on platforms that require user identification, are subject to government supervision and do not allow payments in cryptocurrencies. Secondary trading was generally not allowed or restricted – but things have changed with the recent launch launch of China Digital Asset Trading Platform on 1 January 2023 (a state-backed NFT marketplace that will allow secondary transactions).^[1]

NFTs have started being minted and sold in China since 2021 through a few platforms run by the largest Chinese tech companies (such as Ant Group's "Jingtan" which runs on Ant Group's "Antchain" blockchain, Tencent's "Huanhe" which runs on Tencent's "Zxin Chain" blockchain, and Jingdong's "Lingxi" which runs on Jingdong's "Zhizhen Chain" blockchain). According to market reports, there were more than 500 NFT trading platforms as of June 2022 in China.^[2] NFTCN is one of the largest, using a localized version of the Ethereum blockchain. A new NFT infrastructure has been launched: Blockchain Services Network-Distributed Digital Certificate (BSN-DDC)^[3], which offers application programming interfaces to build portals and apps to store and trade NFTs (rebranded as "distributed digital certificates") integrating several public blockchain networks as "open permissioned blockchains".^[4] And a state-backed NFT marketplace (China Digital Asset Trading Platform) has recently been launched in 2023 as mentioned above.

Although subject to restrictions, there is significant interest for NFTs and cryptoassets in China. Beijing's UCCA Center for Contemporary Art hosted an exhibition on crypto art in March 2021, dubbed "the world’s first major institutional crypto-art exhibition".^[5] Many companies and individuals have issued NFTs in the past couple of years. Digital collectibles such as the payment code skins for the Alipay app issued in June 2021 (Dunhuang Flying Sky and Nine Coloured Deer), Phanta Bear issued in January 2022 (a collection of digital bears that also offers exclusive membership benefits) and Bored Wukong issued in February 2022 (a collection of cartoon monkeys based on the legendary Monkey King, though accused of copying the increasingly popular NFTs collection Bored Ape Yacht Club) have proven successful, generating the equivalent of millions of US dollars in revenues. Fashion brands and other consumer brands have partnered up with online shopping platforms to issue NFTs as gifts to customers purchasing physical products.^[6] Luxury brands have pursued collaborations with toy brands, releasing NFTs such as Marsper's figurines dressed by Gucci,^[7] and Moncler's virtual collection of SPACE MOLLY in partnership with POP MART.^[8] Brands including Louis Vuitton, Mac Cosmetics and Tesla introduced in-game content to games such as League of Legends, Honor of Kings, and Game for Peace where players can use branded dresses and items.^[9]

The size of the Chinese market is still relatively small due in part to the low average price of NFTs and the restrictions on secondary trading. According to statistics released by research agency Enlybee, the number of items offered for sale on various digital collectibles offering platforms was approximately 4.56 million in 2021 with a total market value of approximately RMB150 million (equivalent to about US$23 million).^[10] But the market is expected to expand significantly, partly in response to interest shown by the Chinese government towards the deployment of blockchain-based technologies (more on this in our answer to question 6 below) and the creation of NFT marketplaces which allow secondary trading.

^[1]  Ledger Insights: China launches national digital asset exchange for NFTs, metaverse; The Defiant: China reverses course on NFTs with platform launch 

^[2]  Baijahao Baidu: Cryptocurrency crash record: market value falls below $900 billion China's NFT platform increases to more than 500

^[3]  Medium.com: Five reasons you should choose BSN-DDC for your NFT business in China

^[4]  South China Morning Post: China to create NFT industry based on state-backed blockchain infrastructure, main developer says

^[5]  FT: NFTs in Beijing - 'Who gets to decide the value of art?'; Artnews: UCCA Beijing to present 'World's first major institutional crypto-art exhibition'  

^[6]  Pimnews.org: AR, NFTs and the metaverse - How luxury brands innovated for China's Singles Day shopping festival

^[7]  Jing Daily: Gucci's collaboration with Marsper scores with China's cultural consumers

^[8] Jing Daily: How a new Moncler x POP Mart collab caused a frenzy in China

^[9]  Jing Daily: How luxury brands can enter China's crypto-forbidden metaverse

^[10] Enlybee: China's NFT market in 2022: The most comprehensive analysis guide

China has not yet adopted specific laws or regulations on NFTs. Commercial activities such as issuance and trading fall under the domain of laws broadly applicable to sale of goods and protection of intellectual property, such as the Civil Code, the Patent Law and the Copyright Law. In the absence of specific laws or regulations, certain industry participants have adopted their own conventions on NFTs (for example, the Digital Cultural and Creative Industry Self-Regulatory Convention was jointly formulated on 31 October 2021 by, among others, National Copyright Exchange Alliance, China Academy of Art, Hunan Provincial Museum, Ant Group, Jingdong Technology and Tencent Cloud, setting out certain requirements on industry participants such as banning the use of cryptocurrencies and malicious price speculation on digital creations).^[11]

It is worth noting that, although no specific laws or regulations on NFTs has been adopted in China yet, there is clearly some drive and momentum behind NFTs. For example, on 13 July 2022, Shanghai’s Municipal Government issued the Shanghai 14th Five Year Plan for development of the Digital Economy, which indicates that the Shanghai government will support the establishment of trading platforms for NFTs by first-tier NFT platform operators.

Operators of online NFT platforms are likely subject to telecom regulations and required to obtain a value-added telecom license covering at least the internet content provider ("ICP") business and possibly some other businesses depending on the type of service provided through the platform (e.g., online data processing and transaction processing service). Certain other licenses (in addition to telecom licenses) may also be required, such as art trading, payment license, internet publishing license, or internet culture-related filings and licenses, depending on the circumstances and the services/products provided through the NFT platforms.

Foreign investment restrictions may apply to certain sectors relevant to the NFT market, including for instance the value-added telecom services sector. For example, the ICP license can only be issued to entities in which foreign ownership does not exceed 50%. If cloud services are involved, the provider of such services must obtain an internet resources coordination (IRC) license which is currently only available to entities in which foreign ownership does not exceed 50% and where the foreign investors must be qualifying Hong Kong or Macau Service Suppliers as defined in the Closer Economic Partnership Arrangements (CEPA) between Mainland China and, respectively, Hong Kong and Macau. Certain licenses mentioned above are not available to foreign investors and foreign-invested entities.

Public (decentralized) blockchains are not allowed in China. Chinese laws (such as the Cybersecurity Law) require the construction, operation, maintenance and use of the network to be subject to Chinese laws and regulations, and the internet connection to be filed with the authorities. So, in practice, companies are only allowed to set up private (consortium) blockchains (like the ones mentioned in the answer to question 1 above) which meet the relevant criteria.

^[11] Exchange Wire: "Self-regulation Convention" signed by Chinese Tech Giants; Facebook Metamorphose into Meta

Mainland China currently has no specific legislation regulating NFTs, including their IP aspects. This means that China's general IP laws are applicable to NFTs, amongst which the most relevant are the Trademark Law and the Copyright Law, under which many  graphic or other types of art works (e.g., avatars, digital images, videos, music) linked to an NFT will be treated as works of fine art.

Generally, and absent any agreement to the contrary, under Chinese law, the IP rights (e.g., copyright) in the IP-protected items linked to an NFT remain exclusively with the author or owner of the underlying IP asset, and a license is needed to mint an NFT embodying an IP protected item. This means that buyers of NFTs must tread carefully. The very limited nature of the IP rights of an NFT owner is often overlooked, while it should be an essential consideration when acquiring NFTs.

This was illustrated recently in a copyright case before the Hangzhou Internet Court whose judgment was handed down on 22 April 2022, which is considered to be China’s first court case involving NFTs. The case revolved around the sale for RMB899 (US$135) on the BigVerse platform of an unlicensed NFT embodying a cartoon of a tiger getting vaccinated. The cartoon was created by the artist Ma Qianli and licensed exclusively to a culture commercialization company named Shenzhen Qice. Qice brought a contributory copyright infringement lawsuit against the BigVerse platform based on that sale. In its judgment, the Hangzhou court firstly confirmed that the unlicensed sale of an NFT embodying a copyrighted work constitutes a copyright infringement. Importantly, given the fact that a digital work was sold through the Internet, the court specified that in this case, the sale violated the copyright owner’s right of dissemination through information networks and not its distribution right, so that the doctrine of exhaustion of rights (i.e., the copyright is exhausted after its first sale/publication) is not applicable to the sale of NFTs. Furthermore, the court also considered the BigVerse platform a network service provider rather than a mere content provision platform, based on the characteristics of NFTs, on the platform’s business model (charging transaction costs for each NFT sale) and on its ability to verify the identity of the sellers and the characteristics of the NFTs sold. On this basis, the court rejected the BigVerse’s argument that it was only obligated to provide a "notice-and-takedown" system, and instead considered that the platform had a duty to establish a set of proactive intellectual property review measures to review the copyright ownership status of the NFT works sold. Since the platform had not done so, the court found it liable for contributory copyright infringement and granted the claimant damages of RMB4,000 (approximately US$600) for economic losses and reasonable enforcement expenses. The court also ordered the destruction of the infringing NFT by sending it to an inaccessible address (also known as "burning" the NFT). The judgment in this case is groundbreaking as it clarifies many copyright law aspects of NFT trade in China. An appeal was filed against this judgment with the Hangzhou Intermediate People’s Court, and the appeal proceedings remain pending at present.

As to China's Trademark Law, it impacts the minting and use of NFTs in three ways:

firstly, while there are no published Chinese cases on the topic to date, the minting and use of NFTs containing third party trademarks would likely be considered trademark infringement, provided the trademark owner holds a valid registration for the real-world equivalent of the NFT (e.g., handbags, clothing) or for related goods in the digital sphere (e.g., downloadable image files, computer software for encryption, security tokens). Moreover, such use would also likely be considered unfair competition under China’s Anti-Unfair Competition Law. This means that, similar to the situation under the Copyright Law, acquiring an NFT using or displaying a trademark does not automatically imply obtaining the ownership of, or even a license to use such trademark;

secondly, brand owners generally face an uphill battle when trying to register trademarks for, or including the word "NFT" in China. This is due to the presence of a large number of pre-existing Chinese trademark registrations for the mark "NFT" as a standalone mark in most classes of goods and services in the Chinese trademark register, and also due to the likelihood that China's National IP Administration ("CNIPA") may consider the word "NFT" descriptive. A potential strategy to increase the chances of success here would be to add distinctive elements such as the applicant's pre-existing registered marks or a distinctive logo; and

finally, brand owners wishing to improve their trademark protection in the NFT sphere should proactively extend their trademark protection to the classes of goods and services most relevant to NFTs: i.e., Classes 9, 35, 36, 41, 42 and 45. It should be noted that an attempt in China to register a mark for "NFTs" per se is likely to be rejected by the CNIPA, as it does not yet form part of the current list of standard goods and services in China. Instead, a first attempt should be made to register the mark for the closest standard goods (e.g., "downloadable image files" in Class 9). Brand owners may also consider filing international registrations through the Madrid Protocol designating China, in which case the CNIPA generally takes a more flexible approach in examining the non-standard goods or services items relating to NFTs. Looking forward, the 12th edition of the Nice Classification, which has entered into force on 1 January 2023, explicitly contains an NFT-related category of products in Class 9, namely "downloadable digital files authenticated by non-fungible tokens". However, the CNIPA chose not to adopt this category yet in 2023, so that Chinese trademark applications still have to designate the closest standard goods (e.g., "downloadable image files" in Class 9) .

China has adopted a complete ban on cryptocurrencies (except for government-backed digital currencies, like the Digital Yuan that is currently being rolled out through pilot programs).

Several announcements and notices have been issued by various Chinese authorities over time, cracking down on cryptocurrencies. The main ones are the following:

• Announcement on Preventing Token Fundraising Risks dated 4 September 2017, which banned token fundraisings and trading by companies, individuals and financial institutions;
• Risk Warning for Preventing Illegal Fundraising in the Name of "Virtual Currency" or "Blockchain" dated 24 August 2018, which warned that fundraising activities through the issuance of so-called "virtual currency", "virtual assets" or "digital assets" in the name of "financial innovation" and "blockchain" are illegal; and
• Notice on Further Preventing and Dealing with Speculation Risks in Virtual Currency Trading dated 15 September 2021, which provided that business activities related to virtual currencies are illegal financial activities.

As a result of the above, the mining, offer and use of cryptocurrencies in China, as well as providing overseas cryptocurrency (including for NFT trading) exchange services into China is prohibited.

Certain features of NFTs are similar to cryptocurrencies (e.g., blockchain technology, cryptography, digital form). Therefore, the main NFT platform operators have been wary to eliminate any association with cryptocurrencies by adopting rules that prohibit the use of cryptocurrencies to purchase NFTs on their platforms and by referring to NFTs as "digital collectibles" or "distributed digital certificates" (see our answers to questions 1 and 2 above).

China has enacted a series of laws and regulations in the area of data privacy and cybersecurity, including the Cybersecurity Law published in 2016, the Data Security Law published in 2021, and the Personal Information Protection Law published in 2021, as well as related implementing legislation. All blockchain infrastructure providers and NFT platform operators in China are likely subject to these rules and obligations, hence public decentralized networks are not conceivable in China.

From a cybersecurity perspective:

• certain rules apply to the construction, operation, maintenance and use of networks, and network operators are subject to certain obligations. The terms "network" and "network operator" have a broad meaning: "network" is defined as a system comprising computers or other information terminals and relevant devices that collect, store, transmit, exchange and process information based on certain rules and procedures, and includes both internal and external networks, and "network operator" is defined as the network's owner, manager and service provider. Networks are classified by tier (from tier one to tier five) and obligations are imposed on network operators (which vary depending on the tier the network falls in) to adopt corresponding measures to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered;
• "critical information infrastructure operators" (CIIO) are subject to more stringent rules and obligations (including in terms of data localization requirements and purchase of network products and services) compared to other network operators. The definition of "critical information infrastructure" is broad (it encompasses important networks and systems where their destruction, loss of function or data leakage may result in serious harm to national security, national economy, people's livelihood and public interests, including in the public telecommunications, information services, energy, transportation, water conservancy, finance, public services, e-government and national defense industries) and as such it cannot be excluded that it might apply, depending on the circumstances, to a blockchain network or an NFT platform; and
• more specifically and in connection with the regulation of blockchain information services, under the Administrative Regulation for Blockchain Information Services published by the Cyberspace Administration of China ("CAC") in January 2019, a blockchain services provider must: (i) complete a record-filing with the CAC within 10 working days after starting to provide the relevant services; and (ii) conduct a security assessment of any new products / functions with the CAC (e.g., this might include launching a new type or batch of NFT). It is not entirely clear what the CAC record filing or security assessment criteria are, and whether services provided over any given type of blockchain would be able to complete the record-filing and/or pass the security assessment.

From a data security and personal information protection perspective:

• the blockchain network and NFT platform operators are likely deemed as "data processors" under Chinese law, and in such capacity they must collect and use the personal information under a "legal, proper and necessary" method after having obtained the consent from the information subjects. In many cases, personal information must be stored within the territory of China and transfer of personal information outside of China is subject to certain conditions being met (e.g., a security assessment, third-party certification or standard contractual clauses); and
• data subjects have the right to request the data processor to delete their personal information under certain circumstances. But the data processor may not be able to do so in practice with respect to information that is permanently recorded in the blockchain ledger.

NFTs are expected to continue to develop in China as NFTs "with Chinese characteristics". The Chinese NFTs market will not be a decentralized market like in other jurisdictions where NFTs work on public blockchains. In China, NFTs are likely to continue to be processed on private and "open permissioned" blockchains. It is expected that the Chinese government will start regulating NFTs specifically at some point, and provide rules around secondary trading (see the recent launch of the state-backed NFT marketplace China Digital Asset Trading Platform, as noted in the answer to question 1 above).

Although subject to government supervision and restrictions, NFTs are expected to prosper and be an important revenue driver and marketing tool for artists and brands alike, as well as playing an important role in other industry sectors. Blockchain was identified as a key digital technology in China's 14th Five Year Plan, which shows that the Chinese government is determined to support the development of this technology, with NFTs being part of it. It is likely that the deployment of NFTs will be preferred in areas that service the real economy (as opposed to mere forms of speculation through the trading of art and other collectibles). Areas with potential appear to be the management of certifications and the traceability of goods.

Some have commented that China could provide a better trading environment for NFTs than other countries due to its sophisticated e-commerce infrastructure. NFTs will also enjoy more widespread adoption as the metaverse develops, although to allow Chinese NFTs to function properly in the metaverse certain issues will need to be resolved including in terms of interoperability and secondary trading.