Tokenization of real-world assets banned

China has officially banned onshore activities related to real-world asset tokenization — the act of converting asset rights into tokens or certificates via encryption, distributed ledger or similar technologies — as part of broader efforts by regulators to crack down on illegal activities, contain financial risks and impose clearer rules on emerging digital asset activities to safeguard financial stability.

Overseas RWA tokenization of domestic entities will also be subject to strict compliance requirements, a landmark move that will pave the way for regulated, risk-controlled digital asset innovation, analysts said.

On Friday, the People's Bank of China, the country's central bank, and the China Securities Regulatory Commission, together with six other departments, released a notice effective immediately on further preventing and handling risks related to virtual currencies, updating a 2021 version.

The notice brought RWA tokenization under official regulations for the first time, making it clear that such activities are prohibited onshore, thus eliminating regulatory ambiguity.

According to the notice, RWA tokenization refers to activities that use cryptographic and distributed ledger or similar technologies to convert asset-related ownership and income rights into tokens, a digital representation of rights tied to an underlying asset, stored and transferred via blockchain, or token-like equity and debt instruments, for issuance and trading.

"Speculative activities related to virtual currencies and RWA tokenization occurred from time to time, posing new challenges and new situations for risk prevention and control," an official statement said.

The notice is aimed at fending off these risks to "safeguard national security and social stability". This came after a recent article was published in the Qiushi Journal, a flagship magazine of the Communist Party of China Central Committee, in which President Xi Jinping urged efforts to build a complete and effective financial oversight system.

The notice said that RWA tokenization-related activities may constitute "illegal financial activities" — such as unauthorized public offerings of securities and illegal fundraising — and should be banned.

An exception applies to activities with regulatory approval and "conducted based on designated financial infrastructure", the notice said.

Industry insiders said the exception leaves room for future developments, but the focus remains on strict prohibition for now.

Xiang Haotian, an associate professor of finance at Peking University's Guanghua School of Management, said, "The domestic ban is a continuation of a previous policy tone, mainly targeted at curbing illegal fundraising and capital outflows."

Xiang added that the strict regulation on RWA tokenization abroad is reasonable, given the unresolved issues such as whether domestic data should be shared with foreign investors, the need for establishing cross-border regulatory cooperation mechanisms, and concerns over the security of blockchains as well as the anonymity of investors.

Without the required regulatory procedures, such as approval or filing, onshore entities are barred from RWA tokenization overseas — either in the form of external debt or through asset-securitization-like, equity-type structures based on onshore assets, the notice said.

The oversight is in line with global regulatory trends, as institutions like the Financial Stability Board have warned that virtual assets could threaten financial stability.

Charlie Zheng, chief economist at Samoyed Cloud Technology Group Holdings, said it is a "historic progress" for China to open a compliant channel for specific cross-border RWA business models, enabling limited but regulated digital asset innovation.

This will support Hong Kong's digital finance development and help the overall Chinese economy get a more advantageous position in global financial competition in the digital era, Zheng said.

On virtual currencies, while strengthening bans onshore, the notice added that without regulatory approval, onshore entities and the offshore entities they control are prohibited from issuing virtual currencies overseas, including stablecoins pegged to the renminbi.

By contrast, China has been advancing e-CNY, the country's central bank digital currency. Industry insiders said that compliant cross-border RWA tokenization could eventually help expand the use of the e-CNY.