Thirteen ministries and commissions, along with seven associations, have jointly issued a statement

In early December, regulatory authorities tightened their stance on virtual currencies. Following the announcement by multiple departments on November 28 to combat the trading and speculation of virtual currencies, on December 5, seven industry associations including the China Internet Finance Association and the Banking Association jointly issued a “Risk Alert on Preventing Illegal Activities Related to Virtual Currencies.” This document outlined strict guidelines regarding various aspects such as promotion, trading, and fund circulation. With RWA being seen as a new means of “connecting traditional assets with blockchain technology,” this regulation coincided with efforts by many startup teams to accelerate their efforts in tokenizing assets. The regulatory measures and market enthusiasm created a clear contrast, forcing the industry to reevaluate where the boundaries of compliance should be drawn for RWA.

I. Why it’s not allowed in mainland China: Risk isolation under fundamental principles

The “Risk Alert” clearly states that “current financial regulatory authorities have not approved any activities related to the tokenization of real-world assets within mainland China.” In mainland China, any attempt to engage in RWA activities would face significant legal obstacles like “three major challenges”:

1. Classification of illegal financial activities: The document identifies the issuance and financing of RWA within mainland China as illegal activities such as unauthorized fundraising and public issuance of securities. In mainland China, any attempt to bypass licensing requirements is considered highly risky.

2. Complete blockade by financial institutions: Banks, payment institutions, and internet platforms are completely prohibited from providing settlement and promotional support for such activities. Without channels for depositing funds or access points for users, RWA within mainland China becomes essentially useless.

3. The dominant role of legal tender: RWA-related stablecoins do not have any legal status in mainland China. Attempting to use these assets as an anchor for returns can provoke issues related to currency sovereignty. In terms of criminal defense, the main concern is not whether such activities are illegal, but rather how many years of imprisonment will be imposed. From a regulatory perspective, this high-pressure approach is essentially a “emergency brake” taken by regulators, who haven’t yet developed effective monitoring mechanisms. As mentioned during the discussion, this is largely aimed at protecting society from another systemic financial disaster like those experienced with P2P platforms. Since mainland China is a prohibited area, attention is naturally directed towards offshore markets like Hong Kong and Singapore. Although the seven associations mentioned that “offshore service providers operating within mainland China are also illegal,” they did not impose a blanket ban on purely offshore operations. Here lies a profound macro-level narrative: China’s economic development ultimately requires a connection between domestic and international markets. The mainland’s strict regulations versus Hong Kong’s relaxed policies represent two sides of the same coin. The mainland needs such an “exit point” to allow assets to enter the international market within compliant frameworks.

As long as a project can truly adopt an “offshore” model—where everything, from underlying assets to funding sources, as well as servers and compliance entities, are located overseas. Moreover, there should be no outflow of Renminbi funds within the Chinese mainland. In such cases, mainland regulatory authorities usually lack the motivation to enforce laws across regions. Under this model, if you operate successfully overseas and comply with local regulations (such as obtaining a VASP license in Hong Kong), then that’s your freedom.

Thirdly, there’s the theoretical “pathway” versus the practical “barrier”: timing matters more than anything.

At this point, some mainland bosses might think: Can I transfer their domestic factories or mineral rights to Hong Kong for RWA purposes?

Theoretically, it’s possible to establish an SPV through ODI (Offshore Direct Investment) and transfer ownership to an overseas entity. But in practice, this is like the difficult journey described in Li Bai’s poems—it’s almost like a “barrier” that makes it impossible to proceed.

● First, there are the compliance challenges related to asset transfers abroad: Cross-border transfer of ownership is complex, and it can easily lead to suspicion of asset transfer.

● Second, there are the obstacles related to capital return: The exchange rate settlement process involves strict currency-related inspections. Account closures are often just the least severe consequences; in more serious cases, fines or even accusations of illegal fundraising may follow.

● Finally, there are legal risks associated with “domestic individuals”: If someone operates foreign currency-related businesses from within the mainland, law enforcement agencies can still target them (whether it’s the boss or ordinary employees).

In fact, the more crucial issue related to RWA business lies in “the timing”. Currently, we believe that at the regulatory level, there is consensus among various ministries and departments. The domestic market is currently in a “high-pressure period” where examples of illegal activities are being addressed seriously. Even in Hong Kong, due to the cautious approach of listed companies and licensed institutions towards political and business relationships, the current situation is one where even if something is not explicitly prohibited by law, it’s still advisable to wait before taking action. The best strategy for existing projects at this stage is to comply with “window guidance”: either halt operations or completely switch to overseas solutions. It’s important to avoid acting against regulations.

In conclusion,

RWA isn’t becoming obsolete in the mainland; rather, it hasn’t been fully understood yet. The statements issued by thirteen ministries and seven associations once again emphasize the boundaries for domestic businesses.

But for ambitious mainland companies, the real opportunities in RWA lie in “offshore” markets. This isn’t just another attempt to raise funds illegally in the mainland; it involves complex issues related to legal compliance, foreign exchange management, and international private equity investments.

Our advice is: if you want to engage in RWA activities, please cut off all connections with domestic renminbi, ordinary investors, and promotional channels. In the face of legal boundaries, staying long is more important than moving quickly. Legal boundaries aren’t meant for playing games.

The current silence is a preparation for future regulation. If you plan to carry out RWA activities overseas and need legal compliance analysis or structural design, feel free to contact us for further consultation.