China’s Crypto Crackdown Escalates: RWA Tokenization Banned

China’s regulatory hammer has once again fallen, tightening its grip on the virtual currency landscape. A formidable coalition of eight key government bodies, including the People’s Bank of China (PBoC), the National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology (MIIT), the National Financial Regulatory Administration (NFRA), and the China Securities Regulatory Commission (CSRC), has jointly issued a new directive. This “Notice on Further Preventing and Disposing of Risks Related to Virtual Currency” (link to original PBoC notice) not only reinforces existing prohibitions but, for the first time, explicitly targets the burgeoning sector of “Real World Asset (RWA) tokenization.” This move marks a significant escalation, signaling China’s entry into an even more stringent phase of digital asset oversight, effectively abolishing the 2021 guidelines.

Core Regulations Reaffirmed and Expanded

The new Notice leaves no room for ambiguity regarding the status of virtual currencies:

• No Legal Tender Status: It unequivocally states that virtual currencies like Bitcoin, Ethereum, and USDT lack the legal standing of fiat currency. Characterized by their decentralized nature, cryptographic underpinnings, and digital form, they are explicitly deemed unsuitable for circulation as money in the market.
• Illegal Financial Activities: The directive classifies all virtual currency-related business activities as illegal financial operations. This sweeping prohibition covers:
  • Fiat-to-crypto and crypto-to-crypto exchanges.
  • Acting as a central counterparty for virtual currency trading.
  • Providing information, intermediation, or pricing services for crypto transactions.
  • Token issuance financing (ICOs).
  • Trading of virtual currency-related financial products.

  Such activities are now explicitly linked to illegal fundraising, unauthorized securities issuance, and illicit securities/futures operations, all of which face resolute legal enforcement.

• Offshore Restrictions: The new rules extend to cross-border activities, forbidding foreign entities and individuals from illegally offering virtual currency services to Chinese residents. Crucially, the issuance of Renminbi-pegged stablecoins overseas is also strictly prohibited without explicit regulatory approval from relevant departments.

RWA Tokenization: A New Frontier for Regulation

A major new focus for China’s regulators is the rapidly expanding “Real World Asset (RWA) tokenization” sector, which has seen a surge in popularity in recent years.

• Domestic Prohibition: The Notice clearly states that any RWA tokenization activities conducted within China, along with related intermediary or information technology services, are considered illegal financial activities. These are subject to the same prohibitions and legal consequences as other illicit crypto operations.
• Exceptions for Approved Infrastructure: An important nuance exists: RWA tokenization business activities conducted through specific financial infrastructure and approved by competent business departments are exempt from these blanket prohibitions. This suggests a potential pathway for state-controlled, regulated tokenization efforts.
• Overseas RWA Activities Under Scrutiny: Domestic entities looking to engage in RWA tokenization activities abroad now face rigorous oversight. The directive outlines two key scenarios requiring strict supervision and prior approval/filing:
  1. Foreign Debt or Equity-like Structures: If domestic entities undertake RWA tokenization overseas that resembles foreign debt, asset securitization, or equity-like structures based on domestic asset ownership or usufruct rights, they will face stringent regulation from bodies like the NDRC, CSRC, and the State Administration of Foreign Exchange (SAFE), adhering to the “same business, same risk, same rules” principle.
  2. Other Equity-Based RWA: Other forms of overseas RWA tokenization by domestic entities, especially those based on domestic equity, will fall under the joint supervision of the CSRC and other relevant departments.

CSRC’s Specific Guidance on Offshore ABS Tokens

Complementing the broader directive, the China Securities Regulatory Commission (CSRC) has also released “Regulatory Guidelines on Offshore Issuance of Asset-Backed Security Tokens Based on Domestic Assets.” This mandates strict adherence to cross-border investment and foreign exchange regulations for any offshore issuance of asset-backed security (ABS) tokens supported by cash flows from domestic assets. A crucial requirement is a mandatory prior filing with the CSRC, demanding comprehensive disclosure of assets, structural details, and the token issuance plan.

Enhanced Enforcement and Penalties

China’s approach to enforcement is robust and multi-faceted:

• Inter-Agency Collaboration: A new inter-ministerial joint defense mechanism will integrate the PBoC, CSRC, Public Security, Cyberspace Administration, and judicial systems. This collaborative effort aims to bolster online monitoring, fund tracing, and platform blocking capabilities.
• Financial Institution Restrictions: Financial and payment institutions are explicitly barred from offering any services related to virtual currency activities, including account opening, fund transfers, clearing, and settlement. This prohibition also extends to providing custody, clearing, and settlement services for RWA tokenization businesses and related financial products. Institutions are mandated to enhance risk monitoring and promptly report any illicit activities.
• Business Registration Prohibitions: Enterprises and individual businesses are now forbidden from using terms such as “virtual currency,” “virtual assets,” “cryptocurrency,” “crypto assets,” “stablecoin,” “real-world asset tokenization,” or “RWA” in their registered names or business scopes.
• Continued Mining Crackdown: The NDRC, alongside other departments, will persist in its nationwide crackdown on virtual currency “mining.” This includes the comprehensive investigation and shutdown of existing mining operations, a strict ban on new projects, and a prohibition on mining machine manufacturers providing sales or other services within China.
• Legal Consequences and Investor Responsibility: The Notice sternly warns that engaging in illegal financial activities related to virtual currencies or RWA tokenization will lead to severe legal repercussions, with criminal cases referred to judicial authorities. Moreover, any investments in virtual currencies, RWA tokens, or related financial products that violate public order are deemed civilly invalid, with investors bearing full responsibility for their losses. Those jeopardizing financial order or security will face legal action from relevant departments.

Conclusion

China’s latest regulatory offensive underscores its unwavering commitment to maintaining financial stability and stringent control over its digital economy. By extending its strict prohibitions to RWA tokenization, the authorities are preemptively addressing a new frontier in digital assets, ensuring that innovation does not come at the cost of regulatory oversight or systemic risk. This comprehensive move solidifies China’s position as one of the world’s most restrictive environments for decentralized digital assets, while simultaneously hinting at a future where only state-sanctioned tokenization might find a legitimate path.