China's Latest Tech Ban: A Step Back for Innovation
Strict Regulations on Cryptocurrencies
China has taken another step to tighten its grip on digital currencies. This time, the focus is on tokenizing real-world assets. This move comes after years of strict rules on cryptocurrencies.
- 2017: China banned initial coin offerings and domestic exchanges.
- 2021: The country completely outlawed trading and mining of cryptocurrencies nationwide.
The People’s Bank of China has made it clear that virtual currencies are not recognized as legal tender.
Expanding Definition of Illegal Crypto Activities
Regulators are expanding their definition of illegal crypto activities. Real-world asset (RWA) tokenization is the newest target. This process involves converting ownership rights of real-world assets into digital tokens, which can be managed, traded, and transferred on a blockchain.
Joint Warning from Financial Industry Associations
On December 5, seven major financial industry associations in China issued a joint warning. They declared that all RWA tokenization activities are illegal in mainland China. This marks the first time this emerging sector has been explicitly named alongside other banned activities.
The last time these associations acted together was in September 2021, forcing exchanges and mining farms to exit the country. This action significantly reduced China’s share of global Bitcoin hashrate.
Concerns About RWA Tokenization
Authorities are concerned about the risks associated with RWA tokenization, including:
- Fake assets
- Project failures
- Speculative trading
Officials are also worried that tokenized assets could be used to bypass capital controls, enabling domestic holders to convert traditional assets into digital tokens and send them offshore, evading banking and foreign-exchange regulations.
Reiteration of Ban on Virtual Currencies
The December notice reiterates that all virtual currencies, including stablecoins, lack legal status in mainland China. Individuals and organizations are banned from issuing, exchanging, or raising funds using tokens or stablecoins. This ban applies even if the issuing company is offshore but has staff based inside China.
Global Growth of Tokenization Market
China’s ban on RWA tokenization comes at a time when the global sector is growing rapidly. The global tokenization market has surpassed $30 billion in tokenized assets. While other countries are integrating blockchain-based capital markets, China is choosing a different path.
Maintaining Capital Controls and Reducing Systemic Risk
By sealing off emerging technologies, China aims to maintain capital controls and reduce systemic risk. This move signals that China’s zero-tolerance policy on decentralized assets remains firmly intact.
Impact on Global Financial Landscape
This raises questions about China’s approach to innovation and its impact on the global financial landscape.
