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Chinese authorities are enlisting the services of private companies to sell crypto assets seized in illegal actions to shore up state finances amid an economic slowdown, according to a recent Reuters report based on an analysis of transactions and court documents.

The practice is gaining momentum amid rising crime involving digital assets and is in limbo as China’s ban on cryptocurrency trading takes full effect from September 2021.

These transactions are reportedly bringing millions of dollars to municipal budgets struggling due to slowing growth and rising costs.

However, this trend has revealed gaps in regulation. China has no unified national rules on the handling and disposal of digital assets confiscated in cases involving fraud, money laundering, online gambling and other illegal activities.

Chen Shi, a law professor at Zhongnan University of Economics and Law, said the current approach is a workaround and not really in line with China’s ban on cryptocurrency trading.

Fearing that it could create opportunities for corruption and encourage criminals, legal experts, judges and law enforcement agencies are calling for urgent reform.

According to River, there were about 15,000 bitcoins in China at the end of 2024, valued at about 1.4 billion dollars at the time.

Despite the national trading ban, most of these assets have been converted into cash through private companies transacting on foreign crypto exchanges.

Selling cryptocurrencies through offshore exchanges and peer-to-peer platforms is a common method users use to circumvent the existing ban. Traders on the mainland use social media, VPNs and various payment methods to keep their activities out of the regulatory eye.

Shenzhen-based Jiafenxiang has sold more than 3 billion yuan ($410 million) worth of cryptocurrencies on behalf of several cities in eastern China since 2018, according to the report. The dollar proceeds were converted into yuan and transferred directly to local financial bureaus, circumventing national trading restrictions.

Some lawyers are calling for the central bank to take responsibility for managing the confiscated crypto assets, advocating offshore sales or a national reserve, reminiscent of Trump’s plans to create a bitcoin reserve in the United States.

The Chinese government is rumored to be quietly working to create a strategic bitcoin reserve in response to changes in U.S. cryptocurrency regulation.

the 2021 ban was the culmination of China’s efforts to curb speculative financial activity and prevent capital flight, as significant amounts of cryptocurrencies were used to move money out of China.