NFT companies in China are moving to Hong Kong following a more friendly policy from the region
Cryptocurrencies and NFTs, legally speaking, are mostly in grey areas in mainland China. This has prompted many NFT platforms in the country to expand to Hong Kong. Last October, the Chinese territory of Hong Kong released a policy that welcomes the setting up of NFT-related companies. Among the early entrants is ShucangCN, an NFT platform that has seen a lot of success after it was set up in mainland China in January 2022.
Journey to Hong Kong
ShucangCN has since registered as NFT China Ltd., a move that the founders said has become necessary following compliance risks they could face if they continued operating on the mainland. The friendliness of Hong Kong to digital assets startups has placed the city as a safe haven for Chinese blockchain-based companies.
The city of Hong Kong is becoming a go-to destination for secondary marketplace platforms from China that wish to operate free from anti-crypto policies. Pengfei Wang, CEO of ShucangCN, while speaking about the Hong Kong policy, stated:
“We’re in the process of launching a simple NFT platform in Hong Kong in about two weeks that can facilitate NFT airdrops,”
He added that the company will be setting up other features such as the ability to buy and sell digital collectibles after it has sorted out the appropriate payment system.
More NFT companies are planning to move to Hong Kong
ShucangCN is just one of the many NFT companies from the mainland that are looking to set up shop in Hong Kong to avoid a clash with authorities. This was confirmed by Yifan He, who heads Red Date Technology, the company that is behind the state-backed blockchain infrastructure Blockchain-based Service Network (BSN).
In an interview, the Red Date Technology executive said that most of the company’s clients in mainland China are already working with the platform to help them build infrastructure in Hong Kong.
“They’re discussing with our Hong Kong team to build their platforms there,” Yifan He said.
China’s anti-crypto legislation
China has been at the forefront of banning cryptocurrency since 2017. The country has numerous times moved against Bitcoin and other cryptocurrencies, even though it was once a haven for miners due to the low electricity costs.
By 2021, even mining activities and companies came under tough regulatory scrutiny. This is in contrast with the policy in Hong Kong, where a new licensing program could encompass retail trading of cryptocurrencies. Hong Kong allows institutions and licensed professional investors who hold a minimum of US $1 million to trade cryptocurrencies. This is despite the fact that Hong Kong is a special administrative region of China.
Even though China is yet to roll out specific anti-NFT policies, state-backed media have expressed a stance that is anti-speculative towards financial instruments in the sector. NFT companies like ShucangCN have weathered the storms and succeeded in selling out their collectibles before considering a move to Hong Kong.
There’s still money to be made
Last year, ShucangCN made 30 million yuan (US$4.5 million) in sales, representing a 30% marginal profit. According to the CEO, Wang, its main trading platform, Huashu Wenchuang, collaborated with the country’s equity exchange, Huaren Exchange Center of Culture Property, to ensure that it complied with the laws governing trades in property rights and ownership of traditional artworks. The move was a grand success as it saw sales of tens of millions of yuan.
An official of ShucangCN in Hong Kong, Tony Fu, told reporters that the NFT secondary market is still in murky waters as far as regulatory guidelines are concerned. He stated that there are uncertainties regarding the future of NFT trading in China and that this necessitated the establishment of the company’s secondary trading platform in the more friendly region of Hong Kong.
Still, on the attitude of the Chinese authorities, the Red Date executive, Yifan He, said that regulatory officials in China are particular about the inflow of capital pools from unauthorized sources. The reason is the high risks that investors are exposed to as a result of poor oversight of such businesses:
“But to earn commissions, NFT trading platforms process transactions through capital pools. All cultural equity exchanges that operate secondary trading are all against the law, as they don’t have the licenses to run secondary market businesses with capital pools involved,”
ShucangCN also announced the launch of its NFT futures, which will be open to everyone residing in Hong Kong. The CEO stated:
“Once our secondary trading platform in Hong Kong is set up, users can choose to mint and trade directly in Hong Kong, or they can mint on the mainland platform and trade in Hong Kong,”
He, the BSN executive, maintained that BSN would be an active player that facilitates this for ShucangCN. The company said that the initiative would also be extended to entities involved in minting digital collectibles in mainland China.
It added that minutes of digital assets with the BSN-DDC, which is a network on BSN, can transfer their assets from overseas to BSN, enabling them to trade at NFT marketplaces such as OpenSea. He said there are no laws banning the move of NFTs out of mainland China.
“There is no [legal] issue transferring NFTs out of the mainland, as there’s no personal information attached to them. But you cannot transfer any income from trading back to the mainland. That would be illegal and considered money laundering,”
The hype in the market may be slowing…
Interest in NFTs peaked in June last year before dropping to its lowest ebb in October. For a market that came into the Chinese public consciousness in 2021, it could be defined as a high-velocity market. However, Wang said that the company is focusing on exploring use cases of digital collectibles in the country.
“Until now, many people bought NFTs for collecting or trading purposes. We’re hoping to explore more possibilities,”
ShucangCN has commenced talks with an entity involved in virtual reality to tie digital collectibles to assets in the metaverse. He said that the Hong Kong government leads an incubation program of Cyberport, a technological business park. The ShucangCN officials say that based on antecedence, the company has projected a 50 million yuan revenue for 2023. The company generated 30 million yuan last year.