China reinforces virtual currency ban, targets RWA tokenization risks
China's central bank and securities regulator clarified a joint notice to further prevent and resolve risks related to virtual currencies and real-world asset (RWA) tokenization. The notice reiterates a prohibitive policy stance and expands regulatory oversight.
Renewed crackdown on crypto speculation
China has maintained a prohibitive stance against virtual currency activities since 2021, following rampant speculative trading that disrupted economic order and endangered public property.
The recent recurrence of virtual currency and real-world asset (RWA) tokenization speculation, however, presented new risks and challenges, prompting an update to the previous notice.
The updated policy reiterates that virtual currencies lack legal tender status and related business activities in China are strictly prohibited as illegal financial activities.
RWA tokenization, which converts asset ownership or income rights into tokens for issuance and trading, is also largely prohibited, potentially constituting illegal financial activities like unauthorized public offerings or illegal fundraising.
Overseas entities are explicitly forbidden from providing such services to domestic entities, reinforcing China's long-standing regulatory approach to digital assets.
Cross-border risks and stablecoin concerns
The notice outlines strict regulatory requirements for virtual currencies, emphasizing their risks for money laundering and fraud.
It bans domestic entities and their controlled overseas entities from issuing virtual currencies overseas without approval, acknowledging cross-border transmission risks.
Stablecoins pegged to legal tender are also prohibited from overseas issuance without approval, safeguarding monetary sovereignty.
For domestic entities conducting real-world asset tokenization business overseas, strict supervision applies under the 'same business, same risk, same rules' principle, with oversight from authorities like the NDRC, CSRC, and SAFE.
This framework further strengthens management of financial and IT service institutions involved in these cross-border operations.
Comprehensive, yet challenging enforcement
China's updated notice firmly reiterates its commitment to financial stability and control over the digital economy, leaving no ambiguity regarding virtual assets.
The borderless nature of virtual currencies and RWA tokenization, however, poses significant enforcement challenges, especially in monitoring overseas activities.
Its effective implementation against sophisticated cross-border operations will test regulatory agility.