Months before China’s latest crackdown, the Huobi Global cryptocurrency exchange relocated substantial parts of its operations out of the country, primarily to crypto-friendly Singapore, former and current employees told CoinDesk.
Huobi had been trying to develop overseas operations since China’s earlier clampdown on crypto exchanges in September 2017. The following month, the company set up a separate legal entity in Singapore.
But senior management and a portion of its staff continued to operate in China, until May of this year.
Since then, considerable parts of operations such as business development and marketing began moving overseas, while the less-controversial technical teams remained in China, the current and former employees said.
That way, it would look like Huobi’s company in China was just a tech provider for a crypto exchange that was headquartered and operated abroad, potentially shielding the company from another crackdown, one of the sources said.
On Friday, the People’s Bank of China (PBoC) announced the latest restrictions, which appear to jeopardize even the tech staff Huobi left in place:
“For domestic staff of relevant overseas virtual currency exchanges, as well as legal persons, unincorporated organizations and natural persons who know or should know that they are engaged in virtual currency-related businesses and still provide them with services such as marketing promotion, payment and settlement, technical support, etc., they shall be investigated in accordance with the law.”
The sources, four ex-staffers and one who still works there, did not want to be identified, citing confidentiality agreements. The former employees said they have been keeping up to date with the company by talking to current staff.
They all said that Huobi, one of the world’s largest crypto exchanges by trading volume, was trying to hedge its bets over the last few months in case Chinese authorities decided to take action against the company. They said it was hard to tell whether the staff move was a temporary or permanent measure.
When asked on Sept. 22 (the week before the PBoC’s latest measures) about the former employees’ claims, Huobi co-founder Du Jun said the company “is in the process of expanding globally” so “overseas hirings have accordingly increased.” The expansion will “improve Huobi’s ability to ensure business continuity for its users,” Du said.
Following the PBoC’s Friday announcement, a Huobi representative said that “there are no plans to lay off staff,” adding that the company “has been pursuing a global distributed office structure” and that “many of the employees are not in mainland China.”
Thanks for the coverage @WSJ @ChineseWSJ
For a long time now, Huobi has been establishing our global development strategy. As of today, over 70% of the group’s business originates from countries around the world and this number continues to increasehttps://t.co/eESjWX31p8
— Du Jun (@DujunX) September 28, 2021
Crypto exchanges were supposedly shut out of China in 2017, when the government prohibited them from allowing Chinese consumers to trade crypto for renminbi.
After the 2017 ban, Huobi, OKEx and other exchanges essentially moved out of China on paper. Huobi continued to operate in Beijing, where senior management stayed, and provided trading services to Chinese customers, the sources said.
“The unspoken secret is that most of [Huobi’s] users are in China,” one source said.
Huobi tacitly acknowledged serving Chinese customers on Saturday when it announced, in response to the new regulations, a plan to stop serving such users by the end of the year. The company also removed mainland China as a country/region option on its registration page. By contrast, Binance said it blocked Chinese users and ceased its exchange business there back in 2017, Chinese media reported.
Regulators allowed Huobi and others to stick around and operate in a grey area.
They were interested in learning more about these businesses and keeping an eye on them, but it looks like “they ran out of patience,” one of the sources said.
Huobi in particular reportedly had a close relationship with China’s central bank, starting around the time of the 2017 ban.
But the exchange received a notice in May 2021 warning that regulation would be tightened further, another one of the people said.
The tides turn
Also in May, the State Council of China called for the country’s top regulators to carry out a sweeping ban on crypto trading and mining, citing financial and environmental concerns. The clampdown intensified over the next few months, culminating with the comprehensive policy plan released on Friday.
In June, Chinese censors started blocking social media and internet results for “Huobi” and other crypto exchanges. Later that month, Huobi said it suspended leverage trading for users in China.
FTX and Binance also scaled back margin trading globally.
But as recently as late July, leverage trading was still available to Huobi’s Chinese users without a VPN, a tool commonly used to bypass China’s Great Firewall, two users told CoinDesk.
Also in June, BTC China announced it was closing down its trading operations and OKEx-affiliated exchange OKCoin shut down a Beijing corporate entity.
In July, while Huobi’s migration was underway, the exchange dissolved its own Beijing-based entity, explaining that it was not in use any more. Mining public disclosures, long-time Chinese reporter Colin Wu tweeted that Huobi hoped to move to Singapore.
China’s National Enterprise Information Disclosure System shows that China’s largest exchange, Huobi, applied for the cancellation of its most important Chinese company on July 22. OKEx also cancelled its Chinese company in June. They hope to move overseas, especially Singapore. pic.twitter.com/hJgYpwrdHp
— Wu Blockchain (@WuBlockchain) July 27, 2021
On July 31 the PBoC said it would continue its hardline stance on crypto trading in the second half of the year.
About a month later, the central bank said it had completed the “rectification” of illicit crypto transactions.
When Huobi started moving its staff overseas in May, it still seemed to be a long way from meeting its global aspirations.
The effort after the 2017 crackdown to become a company with global revenue by attracting more non-Chinese customers and organizing overseas offices had mixed results. Two people with direct knowledge of Huobi’s expansion following the 2017 ban described a dysfunctional process.
Huobi hired plenty of local staff in new markets, but decision-making remained firmly with managers at headquarters in Beijing, who often didn’t understand local conditions, the people said.
Many of the company’s top executives don’t speak English, the sources said. This made communication with offices outside China difficult.
A Huobi spokesperson would not directly respond to these claims, but said the company has made “substantial progress” in its “global growth strategy” over the past few years.
The representative said that Huobi’s “business scope covers 140 countries across five continents,” and that it counts over 1,000 employees worldwide.
Outside China, the lack of a common language was detrimental to organizational cohesion, one of the people said.
Huobi branches in Japan and Korea found more success in part because their CEOs spoke Chinese and could better communicate with management in Beijing, the source said.
Because of the importance of local, personal relationships, Huobi is unlikely ever to move fully out of China, the former employee said.
The exchange’s C-suite is barred from leaving the country, according to the Wall Street Journal. As a result, the executives’ direct reports also have to stay in the country to maintain their relationship with their bosses, one source said.