Written by: Encrypted Salad
On December 5th, seven major industry associations, including the China Internet Finance Association and the China Banking Association, jointly issued a "Risk Warning on Preventing Illegal Activities Involving Virtual Currencies." This is a regulatory action following the meeting of thirteen ministries and commissions on November 28th to crack down on virtual currency trading and speculation. The chilling tone conveyed in this document (hereinafter referred to as the "Risk Warning") sent a shiver down the spines of some entrepreneurs planning to tokenize real-world assets (RWA).
Many people have asked me in the comments: Attorney Sha, is RWA completely finished in mainland China?
As Web3 lawyers, we believe the answer to this question is not a simple "yes" or "no." The core of RWA is to digitize and tokenize offline assets using blockchain technology, then facilitate secondary market trading and financing. However, under the current regulatory context in mainland China, any tokenization activity attempting to link with public transactions essentially challenges the red line set by the "9.24 Notice" of 2021. The "Risk Warning" from the seven associations is more like adding several more gleaming padlocks to that already tightly closed iron gate.
I. Why the Mainland "Cannot Do This": Risk Isolation Under the Bottom-Line Thinking
The risk warning explicitly states: "Currently, my country's financial regulatory authorities have not approved any real-world asset tokenization activities (in mainland China)." Conducting RWA in mainland China faces three major legal hurdles:
The document characterizes domestic RWA issuance and financing as illegal financial activities, including suspected illegal fundraising and unauthorized public offering of securities. In mainland China, any financing activity that bypasses the franchise is extremely risky.
A complete blockade by financial institutions: Banks, payment institutions, and internet platforms are all prohibited from providing settlement and promotional support for such businesses. Without deposit channels and traffic entry points, RWA within China has become a resource without a source.
The strong position of legal tender: The stablecoin involved in RWA does not have legal tender status in mainland China, and its attempt to anchor asset returns to it has touched a nerve regarding monetary sovereignty.
Using the bottom-line thinking commonly used in criminal defense: conducting RWA (Reckoning and Exploiting Conflicts of Interest) in mainland China might not be a question of "whether it will be shut down," but rather "how many years will be sentenced." However, from a governance perspective, this high-pressure approach is actually an "emergency brake" from regulators before they have figured out effective monitoring methods. As mentioned in the dialogue, this is largely to protect society and prevent the entire society from experiencing a systemic financial disaster similar to P2P lending again.
II. Overseas "Oases": "Outlets" in a Macro Narrative
Since the mainland is off-limits, attention naturally turns to offshore markets such as Hong Kong and Singapore. Although the seven associations mentioned that "it is also illegal for overseas service providers to conduct business in the mainland," they did not issue a clear "one-size-fits-all" ban on purely overseas business.
Hidden here is a profound macro-narrative: China's domestic economic cycle ultimately needs to connect with the international cycle. The mainland's "strict control" and Hong Kong's "resolute opening up" are actually two sides of the same coin. The mainland needs such an "outlet" to allow assets to enter the international market within a compliant framework.
As long as a project can truly be "fully offshore"—with everything from the underlying assets and funding to the servers and compliance entities located overseas, and without involving any outflow of RMB from mainland China—mainland regulatory authorities typically lack the incentive to enforce regulations across borders. Under this model, if you are doing very well overseas and comply with local regulations (such as obtaining a Hong Kong VASP license), that's your prerogative.
III. The theoretical "access" and the practical "chasm": Timing is paramount.
At this point, some mainland business owners may have an idea: Can I take the revenue rights of my factories and mines in China to Hong Kong to do RWA?
In theory, establishing a Special Purpose Vehicle (SPV) through an ODI (Outward Direct Investment) structure to "transfer" equity to an overseas entity is a feasible approach. However, in practice, this is comparable to the Shu Road in Li Bai's poem, or even a near-impossible obstacle:
First, there are compliance constraints on asset outflows: cross-border asset ownership verification is complex and can easily be suspected of being an asset transfer.
Secondly, the "circuit breaker" for capital repatriation: the foreign exchange settlement process faces extremely strict currency-related scrutiny, and account freezing is often the least severe outcome; more serious cases may involve fines or even suspicion of illegal fundraising.
Finally, the legal risks for "domestic residents": If a person operates an overseas currency-related business in mainland China, law enforcement agencies can still crack down on it (whether it is the boss or management or an ordinary employee, it is considered illegal financial activity).
The core issue regarding RWA (Real-Time Exploitation) business is timing. Currently, we believe that multiple ministries are aligned in their regulatory stance, and China is in a period of intense scrutiny, cracking down on typical cases. Even in Hong Kong, due to the cautious considerations of listed companies and licensed institutions regarding their relationship with government, the current stance is largely one of "even if it's not prohibited by law, please wait." The best strategy for existing projects at this stage is to respond to the "window guidance"—either halt operations altogether or completely switch to an all-overseas solution; avoid defying the regulations.
IV. Conclusion
RWA hasn't died out in mainland China; it's just that it never truly "figured out" the business. The document issued by thirteen ministries and seven associations reiterated the red lines for domestic operations.
But for ambitious mainland companies, RWA's real opportunity lies in the deep waters of "offshore" markets. This is no longer a disguised show of illegal fundraising in mainland China, but a high-difficulty acrobatic feat involving legal compliance, foreign exchange management, and international private equity.
Our advice is: if you want to engage in RWA (Real Money Market Fund) activities, please first sever all ties with the domestic RMB, ordinary retail investors, and promotional channels. When it comes to red lines, survival is more important than speed. Legal red lines are never meant to be played like a game of hopscotch.
The current lull is for future standardization. If you are planning to launch RWA business overseas and need legal compliance assessments or architectural design, please contact us for in-depth consultation.
