The issue of whether there should be legal protection for “virtual property” in China is rife with debate, with ardent voices on either side.
Opponents worry about the dangers stemming from mixing the “virtual world” with the real world: if virtual property – including virtual currency – becomes interchangeable with real property, then problems such as inflation, money laundering and gambling may become rampant.
Gambling is already a pressing social concern: numerous online games offer winnings in virtual currency. If “virtual winnings” are exchanged for real money, then, in essence, online players can gamble.
However, Chinese gambling regulations remain silent on virtual currency. Although the authorities want to prosecute online gambling, there have not been any test cases because the government has no legal basis for doing so.
Based on the above, at the March 2006 “Conference of the National People’s Congress,” one representative proposed a bill banning virtual currency trading and establishing regulations for online games. In February 2007, 14 government agencies including the Ministry of Culture and the Administration of Industry and Commerce, issued a joint statement banning the use of virtual currency to buy real world products, as well as the trading of such currency.
However, little impact resulted from the ban on virtual currency trading. Users continued to conduct trading openly on Chinese auction websites.
The virtual property trade continues to grow at about 20% annually. Advocates argue that their “virtual wealth” should also be legally protected.
Several Chinese cases have recognised virtual property rights. In 2006, Chen Xiao Fan was convicted for virtual property theft in the Guangzhou Tianhe District Court. Chen was an employee of Guangzhou Net Ease Interactive Entertainment and worked on the computer game Westward Journey Online II. He accessed several Net Ease accounts and stole “virtual equipment”. Chen sold the stolen equipment to other players and made a profit of Rmb3,750 (US$548). The court held that because the stolen virtual equipment was paid for by players and negotiable between them, it had value as intangible property.
Furthermore, the State Administration of Taxation recently announced that gains obtained through network virtual currency transactions would be taxed at ordinary income tax rates. The new tax is significant because only legal income is taxable in China. Illegal income can be confiscated by the government, but cannot be taxed. Thus, the new tax regulation tacitly recognises virtual currency trading as legal.
With different government bodies issuing conflicting regulations on virtual property, we look forward to seeing how the National People’s Congress will handle this hot issue.
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