From information provided by the Beijing Administration for Industry and Commerce, a Beijing Review reporter discovered that there is no law prohibiting the transaction of virtual goods. Only when the virtual transaction begins to involve employment, fixed offices and profit from transactions, is it time to consider tax collection and market order. Currently there are no laws or regulations overseeing the profits made from virtual transactions. Because of these regulation gaps, those operating in the virtual money sector are doing so without legitimate licenses.

Many problems could emerge as more people in more fields begin to use virtual money in higher circulation amounts.

Zhou Hongyu, Deputy Director of the Hubei Provincial Department of Education, is worried about possible emerging problems. He fears that web operators could evade income tax from their Web earnings and possibly engage in money laundering. Zhou said that by luring more people to recharge their online accounts, operators can absorb more money-something he believes will lead to illegal use of those funds.

Zhou also contends that since virtual money such as the Q coin is equivalent to yuan, illegal income from gambling can be converted into real money, in turn contributing to the rise in gambling behavior.

Zhou is not trying to be sensational. Online card gaming is a fast-developing industry with a huge potential, he said. For example, on the night of March 6 this year, over 2 million registered players were playing games on the Tencent QQ game platform. Other gaming websites like Ourgame, Shanda Entertainment and Chinagames had hundreds of thousands of players on the same night.

As Wang said, many people attempt to procure Q coins through various means. Though gaming companies don’t provide the service to convert Q coins into yuan, winners can make private transactions on their own to get real money. In this climate, online gambling behavior can easily evade watchdog supervision.

“Online gambling is convenient and secure and won’t be easily discovered,” said Yu Guofu, a lawyer knowledgeable on Internet lawsuits. “Therefore, it is easy to become addicted to it. However, whatever platform the player uses, as long as his or her behavior breaks the gambling laws, the person can be charged with breaking those laws.”

Even with a lack of legitimacy and regulation, the virtual money market is evolving into a massive industry. According to iResearch Consulting Group, the total output value of this industry will exceed 1.7 billion yuan by the end of this year.

The big Q: is it money?

On March 21, Liu Zhiping, Chief Executive Officer of Tencent, denied that Q coins belonged to the category of virtual money. Liu argued that “Q coins are just a kind of prepayment and don’t have the same functions as money.”

Yang Tao, professor with Jiangxi Science and Technology Normal College, contends that although Q coins were originally for the convenience of Tencent users enjoying its value-added services, they have outgrown their legitimate duties. Yang said that Q coins are evolving into an online transaction tool and that the virtual “currency” already has many of the same functions as actual money.

Yang stated that it is possible that Q coins will pose a threat to yuan, but not currently. Once the Q coin becomes a real currency, it will be disastrous, he said. Yang suggests that the government should strengthen regulation on virtual money like Q coins and implement proper supervisory measures.

Yu holds a differing view. He believes that it is impossible that Q coins will threaten the monetary system.

“Inflation is caused by an increase in available currency and credit beyond the proportion of available goods and services,” Yu said. “The government won’t produce more yuan because of the number of Q coins. The distribution of online money is based on demand and has nothing to do with the state financial system.”

Others don’t see it that way. The government has already attached due significance to Yang’s appeal. In early April, four ministries and administrations, including the Ministry of Culture and State Administration for Industry and Commerce, issued a joint notice stating that “virtual money has shown the signs of posing a threat to the current financial and economic order.” The notice also ordered a halt in the trading of virtual money.

The People’s Bank of China, the central bank, has proposed strict regulations on the issuance of virtual money and the amount online game players can purchase. The central bank has ordered that virtual and real transactions must be differentiated and that the amount of transactions should be restricted.

“The notice marked the government’s rising awareness of virtual money,” Yu said.

Tencent responded to these measures in recent months by “readjusting its services in line with government regulations.”