TLDR

  • China has prohibited the unauthorized offshore issuance of yuan-pegged stablecoins and will rigorously examine tokens backed by Chinese onshore assets
  • Eight government agencies, including the central bank, reaffirmed that cryptocurrency-related business operations continue to be illegal financial activities in China
  • The new directive plugs loopholes that allowed Chinese entities to issue virtual currencies via overseas operations
  • China’s central bank highlights that only its digital yuan is legitimate, not private yuan stablecoins circulating on cryptocurrency exchanges
  • Industry experts view these regulations as potentially establishing a framework for real-world asset tokenization business in China

On Friday, China intensified its crackdown on cryptocurrencies with new regulations that ban unauthorized yuan-pegged stablecoins and require strict oversight of tokens backed by Chinese assets. The People’s Bank of China and seven other government agencies issued the directive.

The notice forbids domestic entities and their overseas subsidiaries from issuing virtual currencies without official approval. Foreign entities also cannot issue offshore stablecoins pegged to the yuan without authorization.

China has maintained a ban on cryptocurrency trading since 2021. The new measures target specific activities that emerged as evasions of existing restrictions.

Winston Ma, an adjunct professor at NYU School of Law, stated that China’s central bank is making it clear that only its digital yuan is legitimate. This statement dismisses private yuan stablecoins trading on global exchanges.

Real-World Asset Tokenization Gets Attention

The directive addresses the growing real-world asset sector. In recent years, Chinese goods have been transformed into digital assets with minimal oversight.

Offshore issuance of tokens based on Chinese onshore assets must now obtain approval from relevant authorities. Alex Zuo, senior vice president at Singapore-based Cobo, said this implies China may permit such issuance under proper regulation.

The business previously operated in a grey area with no clear rules. Industry observers are waiting to see if detailed implementation guidelines will follow.

Louis Wan, CEO of Unified Labs, called the separation of virtual currencies and real-world assets a breakthrough. He described the inclusion of RWA in the regulatory system as a milestone for China’s business in this sector.

The eight agencies stated that virtual currencies do not have the same legal status as fiat currencies. They classified business activities related to virtual currencies as illegal financial activities.

Banking Services Prohibited

The central bank cautioned financial institutions against offering banking and clearing services to virtual currency businesses. The directive explains that stablecoins pegged to fiat currencies perform functions similar to actual circulating currencies.

Officials cited recent speculative activities as creating new challenges. These activities necessitated additional enforcement measures beyond existing bans.

The statement largely reinforces Beijing’s existing cryptocurrency prohibition. However, the specific language regarding real-world asset tokens represents new clarity in the regulatory approach.

The regulatory approach contrasts with Hong Kong’s push to become a regulated digital asset hub. Despite operating under Chinese sovereignty, Hong Kong plans to issue stablecoin licenses soon.

Fidelity recently launched a stablecoin in the United States, indicating traditional finance adoption. The Lummis-Gillibrand Stablecoin Act remains stalled in Congress without passage.

South Africa has experimented with the ZARu stablecoin linking local currency to blockchain technology. Other emerging markets continue testing the integration of national currencies with digital platforms.

The notice applies the principle of “same business, same risk, same rules” to offshore operations. Chinese entities cannot bypass regulations by operating through foreign jurisdictions.