China strikes again! Virtual currencies are now fully classified as illegal finance; strict regulation of RWA tokenization and RMB stablecoins

The Chinese authorities have once again intensified their crackdown on virtual currencies. The People’s Bank of China (PBOC), together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and six other departments, jointly issued the “Notice on Further Preventing and Addressing Risks Related to Virtual Currencies.” This notice not only reaffirms that virtual currencies lack legal tender status and that related business activities constitute illegal financial activities but also for the first time includes the popular “real-world asset (RWA) tokenization” under strict regulation. At the same time, it repeals the previous 2021 version, officially entering a more rigorous regulatory phase.

The “Notice” first states that virtual currencies do not have the same legal status as fiat currency. Virtual currencies such as Bitcoin, Ethereum, and USDT are characterized mainly by being issued outside monetary authorities, utilizing encryption technology and distributed ledger or similar technology, and existing in digital form. They lack legal tender status and should not and cannot be used as currency for circulation in the market.

The notice states that activities related to virtual currencies are considered illegal financial activities. Conducting exchange services between fiat currency and virtual currencies within China, virtual currency-to-virtual currency exchanges, using virtual currencies as central counterparties for trading, providing information intermediary and pricing services for virtual currency transactions, token issuance for fundraising, and trading of virtual currency-related financial products are suspected of illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities. All such activities are strictly prohibited and must be firmly cracked down on according to law.

The notice stipulates that overseas entities and individuals are not allowed to illegally provide virtual currency-related services to domestic entities in any form. Furthermore, without approval from relevant authorities, no domestic or foreign entities or individuals are permitted to issue stablecoins pegged to the Renminbi abroad.

Another key point of the “Notice” is the inclusion of the rapidly rising “real-world asset (RWA) tokenization” into strict regulation.

The “Notice” clearly states that any RWA tokenization activities conducted within China, including providing related intermediary and information technology services, are suspected of illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities, and must be prohibited. Overseas entities or individuals are also forbidden from providing RWA tokenization services to Chinese entities in any form.

However, if RWA tokenization activities are approved by the competent business authorities and rely on specific financial infrastructure, they are not subject to this restriction.

Regarding Chinese entities engaging in RWA tokenization activities abroad, the “Notice” stipulates that, without approval or filing with relevant authorities, no units or individuals are allowed to conduct such activities. It highlights two situations requiring close regulation:

1. If a domestic entity conducts RWA tokenization abroad in the form of foreign debt or based on domestic asset ownership or income rights, or conducts asset securitization or equity-like RWA tokenization overseas, they should be regulated by the National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments according to their responsibilities, following the principles of “same business, same risk, same rules.”

2. If a domestic entity conducts other forms of RWA tokenization abroad based on domestic rights and interests, the China Securities Regulatory Commission and relevant departments will oversee the activities according to their responsibilities.

It is noteworthy that the China Securities Regulatory Commission has also issued the “Regulatory Guidelines on Domestic Asset-Backed Securities Issuance of Asset-Backed Tokens Abroad.” If the cash flows generated by domestic assets or related rights are used to support payments, and asset-backed securities tokens are issued abroad, strict compliance with cross-border investment and foreign exchange management regulations is required. Prior filing with the CSRC is mandatory, along with full disclosure of assets, structure, and token issuance plans.

On the enforcement front, Chinese authorities will establish a cross-departmental joint prevention mechanism, integrating the central bank, CSRC, public security, cybersecurity, and judicial systems to strengthen online monitoring, fund tracking, and platform blocking. Financial institutions and payment service providers are explicitly prohibited from providing account opening, fund transfer, and clearing services related to virtual currency activities, as well as custody and settlement services for RWA tokenization and related financial products. Risk monitoring will be enhanced, and any illegal or irregular activity clues should be reported promptly to relevant departments.

Additionally, the registration names and business scope of enterprises and individual businesses are not allowed to include terms such as “virtual currency,” “virtual assets,” “cryptocurrency,” “crypto assets,” “stablecoins,” “real-world asset tokenization,” or “RWA.”

The “Notice” also mentions that the National Development and Reform Commission will continue to work with relevant departments to promote the rectification of virtual currency “mining” activities, thoroughly investigate and shut down existing mining projects, strictly prohibit new mining projects, and ban “mining” machine manufacturers from providing sales and other services within China.