Shanghai Officially Announces Support for NFT Trading Platforms: How Should Investors Select Investment Targets?

Authors: Song Ruiqiu, Zhang Yi, Jin Xin, Huang Yun, Jiang Hui, Wang Zhehui, King & Wood Mallesons Research Institute

On July 12, 2022, the General Office of the Shanghai Municipal People's Government issued the "Shanghai Digital Economy Development 14th Five-Year Plan," which explicitly stated support for "leading enterprises to explore the construction of NFT trading platforms." As one of the hottest investment sectors in 2021, NFT (Non-Fungible Token) successfully broke out from the cryptocurrency space, attracting major internet companies and professional investment institutions. For a time, the phrase "everything can be an NFT" echoed throughout investment circles. Now, with the Shanghai government officially endorsing the development of NFT trading platforms, NFTs are once again thrust into the forefront of investor attention.

As NFTs remain a nascent phenomenon, investors chasing this trend may apply the following criteria as preliminary screening standards when evaluating potential NFT trading platform investments, helping avoid legal and regulatory risks.

Criterion One: Does the NFT trading platform allow users to resell NFTs?

In China, NFT trading platforms are often referred to as "digital art trading platforms," commonly likened to e-commerce marketplaces such as Taobao. Dominant Chinese NFT platforms typically issue NFTs via PGC (Professionally Generated Content), meaning they collaborate with artists and other professionals to co-launch NFTs representing non-standardized digital ownership certificates of physical or digital artworks.

Given that China’s regulatory environment emphasizes the collectible nature of NFT artworks and aims to curb speculative trading, secondary market liquidity for NFTs is restricted. In April 2022, three industry self-regulatory bodies—the Internet Finance Association of China and others—issued the "Initiative on Preventing NFT-Related Risks," extending existing regulations governing cultural artwork rights trading to the NFT sector. The initiative prohibits services such as centralized trading, continuous listing, or de facto establishment of unauthorized trading venues, indicating regulators’ likely negative stance toward active NFT secondary markets.

Therefore, mainstream NFT trading platforms currently do not support user resale of NFTs. Investors discovering any platform allowing such resale during due diligence should pay special attention to associated legal risks. Additionally, there remains debate over whether gifting NFTs between users constitutes secondary market trading. If a platform permits gifting, careful evaluation of timing and usage restrictions is required during due diligence.

Criterion Two: Does the NFT trading platform involve virtual currencies like Bitcoin?

The People's Bank of China declared in 2021 that virtual currencies do not have legal tender status and cannot circulate as money in the market. Although both Bitcoin and NFTs are built on blockchain technology, domestic NFT platforms in China must not use virtual currencies for pricing or settlement. Currently, mainstream NFT platforms in China conduct issuance and transactions through licensed payment channels such as Alipay, using Renminbi (RMB) for all pricing and settlements.

Notably, beyond traditional equity investment, token-based financing has gained traction among global investors, particularly in Web 3.0 projects—including overseas NFT platforms—where private equity funds invest by purchasing tokens. However, given the PBOC's ban on all forms of token issuance and fundraising activities, token financing cannot legally be used to invest in domestic Chinese NFT platforms.

Criterion Three: Does the NFT trading platform hold essential business licenses?

NFT platforms serve diverse applications, but the following licenses are commonly considered core operational requirements. Investors should verify whether target platforms possess these during due diligence:

● Blockchain information service security assessment and filing registration.

● Value-added Telecommunications Business License (typically Class B25 ICP license; if the platform supports third-party入驻 in a "Taobao store" model, a Class B21 EDI license may also be required).

Beyond these core licenses, additional qualifications may apply depending on the type of digital content and business model. For example, one NFT platform, while holding the above core licenses, also obtained an Online Culture Operation Permit due to its inclusion of musical theater works.

Given the wide variety of digital content types and business models across NFT platforms, the applicability of certain licenses may be subject to interpretation and regulatory discretion. Whether a potential investment target has secured all necessary permits requires case-by-case analysis during due diligence.

Criterion Four: Foreign investors must pay special attention to foreign ownership restrictions

Foreign investors should be particularly mindful of foreign ownership limitations inherent to NFT trading platforms. Since most NFT platforms require a Class B25 ICP license under the Value-added Telecommunications Business License, foreign shareholding must not exceed 50%. While this cap remains firm, recent years have seen increased flexibility in obtaining such licenses for foreign-invested enterprises, reducing previous practical hurdles that made approvals extremely difficult.

Moreover, the nature of digital content offered on the platform (e.g., paintings, music, audiovisual programs) could impose further foreign investment restrictions. For instance, if an NFT platform features audiovisual programming content, its NFT minting and distribution activities may fall within sectors prohibited for foreign investment. In such cases, foreign investors would have no choice but to forego investment opportunities.

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