Did China Ban Crypto Again?

TLDR

• China banned unauthorized offshore issuance of yuan-pegged stablecoins and will strictly vet tokens backed by Chinese onshore assets
• Eight government agencies including the central bank reinforced that cryptocurrency business activities remain illegal financial activities in China
• The new directive closes loopholes allowing Chinese entities to issue virtual currencies through overseas operations
• China’s central bank emphasizes only its digital yuan is legitimate, not private yuan stablecoins on crypto exchanges
• Industry experts see the regulations as potentially creating a framework for real-world asset tokenization business in China

China expanded its cryptocurrency crackdown on Friday with new rules banning unauthorized yuan-pegged stablecoins and requiring strict oversight of tokens backed by Chinese assets. The People’s Bank of China joined seven other government agencies to issue the directive.

The notice prohibits 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 workarounds to existing restrictions.

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

Real-World Asset Tokenization Gets Attention

The directive addresses the growing real-world asset tokenization sector. Chinese goods have been converted into digital assets with limited oversight in recent years.

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

The business previously operated in a grey area without clear rules. Industry watchers are waiting to see if detailed implementation guidelines will follow.

Louis Wan, CEO of Unified Labs, called the separation between 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 lack 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 warned financial institutions against providing banking and clearing services to virtual currency businesses. The directive explains that stablecoins pegged to fiat currencies perform functions similar to actual currencies in circulation.

Officials cited recent speculative activities as creating new challenges. These activities prompted the need for additional enforcement measures beyond existing bans.

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

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

Fidelity recently launched a stablecoin in the United States showing 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 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 circumvent regulations by operating through foreign jurisdictions.

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