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 and Other Activities.” 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. Additionally, it abolishes the previous 2021 version, marking a move into 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 by features including 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, 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 virtual currency-related financial products are all suspected of illegal activities such as illegal issuance of tokens or tickets, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities. These are strictly prohibited and will 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 departments and in accordance with laws and regulations, no domestic or foreign entities or individuals are permitted to issue stablecoins pegged to the Renminbi abroad.

Another major focus 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, as well as related intermediary and information technology services, are suspected of illegal activities such as illegal issuance of tokens or tickets, unauthorized securities issuance, illegal operation of securities and futures businesses, and illegal fundraising, and must be prohibited. Overseas entities or individuals are also forbidden from providing RWA tokenization services to Chinese domestic entities in any form.

However, RWA tokenization activities approved by the competent business authorities and conducted through specific financial infrastructure are not subject to these restrictions.

Regarding domestic entities engaging in RWA tokenization activities abroad, the notice stipulates that, without approval, filing, or other necessary procedures from relevant departments, no units or individuals are allowed to conduct such activities. It highlights two key regulatory scenarios:

1. If domestic entities conduct RWA tokenization activities abroad in the form of foreign debt or based on domestic asset ownership or income rights, such activities 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 domestic entities conduct other forms of RWA tokenization abroad based on domestic rights and interests, supervision will be carried out jointly by the China Securities Regulatory Commission and relevant departments according to their responsibilities.

It is noteworthy that the China Securities Regulatory Commission has also issued the “Regulatory Guidelines on Domestic Asset-Backed Securities Token Issuance Abroad.” If the cash flows generated by domestic assets or related rights are used to support repayment, 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 and full disclosure of assets, structures, and token issuance plans are mandatory.

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, clearing, and settlement 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 clues must 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.