Thirteen Ministries and Seven Associations Issue Document to Prevent Virtual Currency Risks, Where is the Path for RWA?
On December 5th, seven Chinese industry associations, including the Internet Finance Association and the Banking Association, jointly issued a "Risk Warning on Preventing Illegal Activities Involving Virtual Currencies." This follows a meeting on November 28th where thirteen government ministries and commissions discussed cracking down on virtual currency speculation. The document signals a tightening regulatory environment, causing concern among entrepreneurs planning Real World Asset (RWA) tokenization projects in mainland China.
The core of RWA involves digitizing and tokenizing offline assets using blockchain technology for secondary market trading and financing. However, under China's current regulatory framework, any tokenization activity linked to public trading challenges the red lines established in the September 24, 2021 notice. The recent Risk Warning reinforces these strict prohibitions.
The document explicitly states that no RWA activities have been approved by financial regulators in mainland China. Key legal obstacles include:
1. The定性 (qualification) of such activities as illegal fundraising and unauthorized securities offerings.
2. A complete ban on financial institutions and payment platforms providing settlement or promotional services for these businesses.
3. The non-legal status of stablecoins involved in RWA, which touches upon monetary sovereignty.
Conducting RWA business in mainland China thus carries significant legal risks, including potential criminal penalties. This stringent stance is seen as a preventative measure to avoid systemic financial risks, akin to the previous P2P lending crisis.
While the domestic market is effectively closed, opportunities may exist in offshore markets like Hong Kong and Singapore. The associations' warning also notes that overseas service providers offering services within China is illegal. However, purely offshore operations—where the underlying assets, funding, servers, and compliant entities are all outside mainland China and do not involve RMB outflow—might not be explicitly forbidden. This creates a potential "outlet" for assets to connect with international markets in a compliant manner.
Theoretically, a path exists for Chinese companies to use an ODI (Overseas Direct Investment) structure to establish a Special Purpose Vehicle (SPV) and tokenize assets like factory or mineral rights in Hong Kong. However, in practice, this is extremely challenging due to complex cross-border asset verification rules, strict scrutiny over foreign exchange and capital repatriation (which could be deemed illegal fundraising), and legal risks for individuals within China managing overseas crypto businesses.
The current period is one of heightened regulatory scrutiny and unified opposition from multiple ministries. The prevailing advice, even in Hong Kong, is to pause and wait. Existing projects are advised to heed "window guidance," either stopping operations or completely transitioning to a full offshore model.
In conclusion, RWA was never truly viable in mainland China under the current rules. The recent notices simply reinforce existing red lines. The real opportunity for ambitious Chinese companies lies in complex, fully offshore operations that meticulously navigate legal compliance, foreign exchange management, and international private placement rules—completely severed from mainland RMB, retail investors, and domestic promotional channels. The paramount advice is longevity over speed; legal red lines are not to be tested. The current silence may precede future standardization. Those planning offshore RWA ventures are advised to seek professional legal consultation for compliance and structuring.
marsbit12/29 11:36
