China May Be Embracing Bitcoin Again — But Investors Should Be Cautious.

China, which has long held a skeptical stance on Bitcoin and the broader crypto market, is now beginning to reassess its position. According to a recent article in Global Economic Daily, Chinese authorities are actively considering lifting the ban on domestic Bitcoin mining, and discussions are underway regarding the accumulation of crypto reserves. This signals a clear shift in Beijing's posture toward digital assets.

But is this sudden? Not quite. In fact, China has shown signs of deep internal deliberation on crypto regulation over the past few years, especially as the United States—under President Trump—took a more open stance toward cryptocurrencies, aiming to increase its influence in this domain. Within China, concerns began to emerge that the country was falling behind in setting the rules of a market it once dominated.

Therefore, this is not merely a policy reversal. Rather, it appears to be a strategic prelude to broader structural adjustments. And to understand why China is making this pivot now, one must look deeper—at the structural constraints China faces today and the risks it sees on the horizon.

1. The Limits of Labor Income, and the Turn to Capital Income

China is facing both internal and external pressure. Externally, its export-driven growth model is deteriorating under pressure from the U.S. Internally, youth unemployment is rising, local government debt is growing, and the real estate market—long a pillar of domestic demand—is crumbling. At the same time, China has little room for bold monetary moves, with U.S. interest rates now higher than China’s, and inflation threatening to climb again.

All of this brings the focus back to domestic consumption. But with rising unemployment and declining corporate profits, it is increasingly difficult to raise labor income. As a result, China can no longer rely on wage-driven consumption.

So what’s left? The answer is capital income.Chinese policymakers are now turning toward a strategy of boosting capital income to generate a “wealth effect” that stimulates spending. Since income is comprised of labor and capital, expanding capital returns through asset markets may offer the only viable path to consumer-driven recovery. And that’s where Beijing is focusing its attention.

2. Opening Asset Markets—and the Role of Digital Assets

Though officially socialist, China in practice resembles a form of state-driven capitalism. Chinese citizens are financially savvy, entrepreneurial, and highly active in asset markets. If the government opens financial markets, people are likely to jump in quickly, seeking returns. This influx of domestic capital could revitalize the asset markets and substitute for stagnating labor income—perhaps even exceeding it. And naturally, this would fuel domestic consumption.

That is the key expectation behind China's evolving strategy. And at the heart of it are two assets: the Chinese stock market and digital assets like Bitcoin.

While stock market liberalization comes with bureaucratic and regulatory delays, Bitcoin and other crypto assets offer lower entry barriers and immediate investor response. As 24/7 global markets, they appeal particularly to younger generations and the middle class. Moreover, the fact that Bitcoin ETFs have been approved in the U.S. signals that crypto is now part of the dollar-based global financial system.

This means that if China opens its crypto markets, it could gain access to a new channel for dollar inflows—a significant advantage at a time when the country is struggling with foreign exchange shortages.

3. Crypto May Solve Problems—But It Also Creates New Ones

Yet welcoming Bitcoin into the system is like embracing a double-edged sword.While crypto assets may facilitate foreign capital inflows, they are also hard to control—which makes them an equally potent tool for capital flight.

And herein lies the core dilemma.China's affluent classes are already deeply distrustful of the government, especially after years of sweeping crackdowns on tech firms, private education, and real estate. These events left a lingering belief that “the state can destroy your wealth at any time.”

As a result, wealthy Chinese aren’t likely to invest to consume—they invest to exit.Bitcoin is a perfect escape route: fast, borderless, and anonymous. So if China opens the crypto market, it could trigger an exodus of domestic capital before foreign capital has a chance to enter. This would lead to a severe drop in foreign reserves, a weakening yuan, shaky financial markets, and declining investor confidence—creating the very crisis China is trying to avoid.

In short, what was meant to be a growth strategy could backfire spectacularly.

4. Trade War Risks and Strategic Caution

What makes matters worse is geopolitics.The U.S.–China trade war is escalating again. Washington’s tech bans and tariff threats are spreading across sectors—from semiconductors and AI to energy and logistics. In such an environment, global capital doesn’t chase yield—it prices in risk first.

For China, this means financial market opening is only viable if geopolitical tensions ease first. In other words, liberalizing markets before resolving external threats may invite capital outflows, not inflows.

However, U.S. Commerce Secretary Gina Raimondo recently warned that a comprehensive tariff agreement could take 2–3 more years. That’s a clear signal: now is not the time for China to open the gates.

5. Conclusion: China Must Open Its Markets to Grow—But Doing So Could Trigger a Crisis

China’s reconsideration of Bitcoin is strategic. But timing is everything.This is not about simply loosening rules or following global trends—it’s about rebuilding the entire platform before pressing “open.”

If the U.S.–China relationship stabilizes and confidence returns, China may find the right moment to open both its asset markets and crypto channels to global capital. At that point, capital income could lift household wealth and drive real consumption.

But if China opens up while tensions with the U.S. are still rising,Bitcoin may become the channel through which domestic capital flees—rapidly, silently, and irreversibly. In that scenario, China wouldn’t just fail to attract capital—it could face a full-blown currency crisis.

So for now, investors must watch carefully.China’s market holds promise—but until strategic conditions improve, raising cash and minimizing risk may be the wiser move. Growth is possible, but only if capital is allowed in—and not allowed to vanish.