China and Crypto: A ban on the Mainland but experimentation in Hong Kong

China’s zero-tolerance stance on cryptocurrencies is well documented, but that has not stopped state-owned Futian Investment Holdings from issuing in August the world’s first publicly offered real-world asset (RWA) bond on the Ethereum blockchain, valued at $70 million.

Over the past five years, China’s approach to cryptocurrencies has hardened, but it has not turned away from the $3.8 trillion digital assets market entirely, utilizing low-level pilots and the Hong Kong markets as an experimentation ground to maintain its involvement in the world’s largest growing financial trend. The global shift towards digital assets is significant and inevitable, and while their decentralized nature is at odds with China’s centralized approach, the country is acknowledging a need to stay in the loop.

Hong Kong has positioned itself as a regulated gateway for digital assets, catering both to global markets and to the interests of Mainland-linked investors. The interplay between the approaches of Hong Kong versus the Mainland has significant implications for global digital asset markets, digital finance innovation and the balance between state control and market experimentation.

“Mainland China has definitely taken the conservative approach, while also using Hong Kong as a place to experiment,” says Wei He, China Economist at Gavekal Dragonomics. “That said, the two are still somewhat in sync, so even if Hong Kong moves forward, it still aligns with Mainland standards. China will never abandon control of the financial system.”

Contrasting crypto stances

There is a fundamental contradiction that China faces with crypto and other digital assets in their decentralization, which appears at odds with China’s centralized approach to the economy.

As such, China’s regulatory posture toward cryptocurrencies has hardened since 2017, culminating in the 2021 blanket ban on all domestic crypto trading and mining activities. The last five years have seen this prohibition continue, as authorities seek to maintain control over the financial system, limit speculative trading, prevent financial instability and protect the integrity of capital controls.

Enforcement of the ban has included cutting off banking and payment service channels for crypto-related activities, dismantling large-scale mining hubs in different parts of the country and attempts to reduce the number of offshore exchanges that continue to serve Mainland clients.

“The ban is a little bit vague in its wording and has quite a broad definition of crypto activities,” says Jason Chan, Partner at Hong Kong law firm Howse Williams. “Crypto mining specifically is banned as it brings little value to China, which makes sense because other crypto activities cannot be done in China. Cryptocurrency is also not recognized as legal tender in China. Taken together, these constitute the ban.”

Despite the domestic ban, Chinese nationals and companies remain influential participants in the global crypto ecosystem, particularly in crypto mining. Former Mainland-based mining firms such as BIT Mining, Canaan Inc. and MicroBT have all relocated operations across Central Asia, the US and Southeast Asia, retaining significant market share in Bitcoin’s global hash rate.

“Although they may not now be run by Chinese citizens, all the major crypto exchanges globally still have large levels of Chinese ownership,” says Nishant Sharma, founder and CEO of Bitcoin mining consultancy BlocksBridge Consulting. “Some Chinese-owned Bitcoin mining companies are even traded publicly on NASDAQ, and when you go to a mining conference in the US or anywhere, it’s mainly Chinese people—they still are quite heavily involved in the infrastructure of Bitcoin.”

Similarly, Chinese entrepreneurs founded or scaled some of the world’s largest crypto exchanges and wallet providers, such as Binance and BTCC, often operating through offshore entities while maintaining technical and managerial bases in Asia.

In contrast to the Mainland approach, Hong Kong has in recent years increasingly opened its arms to cryptocurrencies and other digital assets. Since 2019, when it first introduced a voluntary licensing regime for virtual asset trading platforms, Hong Kong has rapidly advanced its digital asset strategy, with regulators increasingly allowing activities related to stablecoins—cryptocurrencies pegged to a currency or commodity—licensing regime, piloting tokenized deposits and wholesale central bank digital currency (CBDC) settlement through Project Ensemble, and building a sandbox for banks, asset managers and fintechs to test tokenized money, securities and real-world assets (RWAs).

A pivotal development came in 2023 with the launch of a comprehensive licensing regime for digital exchanges, requiring rigorous compliance with anti-money laundering (AML) and investor protection standards.

Alongside these domestic initiatives, the government is driving internationalization by collaborating on cross-border pilots, enabling tokenized products issued in Hong Kong to be traded globally, while HKEX is exploring listings of tokenized securities and private players like HashKey and OSL scale regulated custody and trading to attract institutional flows.

“Hong Kong is aiming to be the world’s crypto hub,” says Chan. “There is a broad range of initiatives to give legal and regulatory clarity to the crypto industry there, and there have been explicit statements from multiple agencies making clear this ambition.”

China’s crypto stance also needs to be viewed through the wider lens of US-China technology decoupling and global competition over financial infrastructure. In this environment, Hong Kong’s role as a crypto hub functions not only as a testing ground for China’s involvement in decentralized financial technologies, but also as a partial workaround, giving Chinese institutions exposure to blockchain finance without being fully constrained by Mainland rules or foreign restrictions.

The e-CNY

On one hand there are bans in place, but these are balanced by active promotion of a state-backed digital currency and some experimentation with decentralized assets via Hong Kong.

First piloted in 2020, the CBDC digital yuan (e-CNY) is a digital legal tender issued by the People’s Bank of China (PBOC) equivalent to the physical renminbi.

“The main difference is that CBDCs are private, and stablecoins are public,” says Chan. “The CBDC keeps money in the China loop, which they see as important for capital controls. Stablecoins and CBDCs are destined to do different things, and they will be in parallel in terms of success.”

The PBOC has rolled out the e-CNY across major cities, integrating it into transport systems, utilities, tax platforms as well as Alipay and WeChat Pay. State-owned banks have tested hardware wallets and offline payments, while cross-border pilots for e-CNY have been extended into Macau. And by June 2024, it had been used in 26 cities for transactions worth a total of ¥7 trillion ($977 billion). The e-CNY is the only large-scale, fully operational digital asset initiative within China’s borders.

“The response to CBDC pilots has been lukewarm because the existing payment system with Alipay and WeChat Pay is already very advanced,” says Chan. “Some people are also asking: why do we need another payment method that potentially gives up all our privacy to the government?”

Stablecoins

Another digital asset on the rise globally are stablecoins, which are digital assets pegged to fiat currencies like the US dollar or assets such as gold, and are designed to act as digital cash, offering stability, fast settlement and ease of use compared to more volatile cryptocurrencies like Bitcoin or Ethereum. Their utility in payments, cross-border transactions, and linking traditional finance with crypto makes them attractive, but in China they are viewed as a threat to capital controls, since dollar-backed stablecoins such as USDT and USDC can facilitate unregulated outflows that undermine exchange rate management.

As a result, stablecoins are also formally banned along with other forms of digital assets, though enforcement is imperfect and they continue to exist in less-than-official capacities. While it is hard to ascertain a precise figure for the amounts of money leaving China and entering the digital world—figures are unavailable post-2021 due to the crypto ban—the last clear figure on cryptocurrencies and stablecoins came from blockchain forensics firm Chainalysis, which reported that before the ban $50 billion had left China via cryptocurrencies and stablecoins in 2020.

Despite the ban, Chinese entities have not turned away from stablecoins entirely, but any experiments are tightly regulated and routed through Hong Kong. In August 2025, the Hong Kong Monetary Authority (HKMA) launched the city’s Stablecoins Ordinance, establishing a licensing regime for fiat-referenced stablecoin issuers. The ordinance requires issuers to maintain full cash reserves and adhere to rigorous governance standards.

“A lot of Mainland SOE banks are looking into getting licenses to get involved in stablecoins,” says He. “In fact, almost everyone that is getting involved has some relation to the Mainland. There are a lot of institutions and talent staying involved, but they are just doing it in Hong Kong now.”

There have already been over 40 applications for the stablecoin licenses, including from Chinese giants such as JD.com—which has set up JD Coinlink to pursue an HKD-pegged stablecoin, Ant Group and a joint venture between video game company Animoca Brands and Standard Chartered, but the number of expected license approvals is set to be in the single digits. As of writing, the HKMA website says that there have been no license approvals.

Additionally, there have been rumors that the Chinese government would put an end to this stablecoin approach that were published in a since-deleted Caixin article in September. However, there has yet to be any evidence that this was the case.

The Hong Kong stablecoin experiment is also opening the door for a potential yuan-denominated stablecoin, which has been called for, also by companies such as JD.com and Ant Group in June, in order to counter the dominance of US dollar-pegged cryptocurrencies. Government meetings were held in August related to the greater internationalization of China’s renminbi, and stablecoins, thanks to their ability to ease cross-border money transfers and bypass the SWIFT system, are expected to have been part of this conversation. But an onshore yuan-backed stablecoin is not expected any time soon, if at all.

“There is no really promising sign of an onshore yuan-based stablecoin,” says He. “Recent reports that policymakers had shifted toward encouraging stablecoins turned out to be inaccurate, and the former PBoC governor even wrote about the risks, and policymakers remain cautious. Offshore yuan-based stablecoins may happen one day, but onshore is still pretty far away.”

Other digital assets

Outside of cryptocurrencies and stablecoins, there are several other digital assets that China is experimenting with to some degree, although they are often limited to permissioned blockchain pilots within state banks, clearinghouses and local government sandboxes, or again channeled through Hong Kong.

In 2020, China launched the state-backed Blockchain Service Network (BSN), a backend architecture in China for developing and managing blockchain-based applications, which seeks to mimic the global blockchain in terms of technology, but also adds a level of control.

A number of major players—including Zhuhai Huafa Group, a municipal SOE, and Bank of Communications (Hong Kong)—have already issued digitally native bonds through Hong Kong’s infrastructure, such as the HKMA’s Central Moneymarkets Unit and HSBC’s Orion platform. Similarly, BOCI, the investment arm of Bank of China, has sold tokenized structured notes to international investors.

The Project Ensemble sandbox—a joint HKMA initiative—has drawn participation from Chinese banks and asset managers for pilots in tokenized deposits, carbon credits and money market funds, further embedding Chinese financial institutions in the city’s Web3 experiments.

State-owned Futian Investment Holdings’ world-first real-world asset (RWA) tokenization is also a major step forward for China in the digital assets space. The bond, issued at a scale of ¥500 million ($70 million), was issued on the permissionless Ethereum blockchain and is structured as traditional debt, but issued through blockchain technology, enabling investors to purchase the company’s debt in tokenized form while maintaining the familiar features of a conventional bond. GF Securities (Hong Kong) was the lead global coordinator and sole arranger for the two-year 2.62% bond that carries a Fitch A- rating.

But each of these incidences are not regarded as a wholesale push forward for China into digital assets. Particularly now that the Chinese government, in September, called for Mainland companies to pull back on their pursuit of RWAs in Hong Kong. It is not yet an outright ban, but signals a potential change in stance.

“These digital bonds and tokenization projects feel more symbolic, showing technical capability rather than real momentum,” says He. “Foreign investor demand seems limited, and securitization in China has never been about lack of technical means—it’s more about low demand and reluctance to push too hard because of financial stability concerns.”

Currencies of the future?

China’s approach offers lessons for other emerging economies grappling with the tension between innovation and control. The general impression is that a state can both place controls on crypto activity domestically while simultaneously investing in controlled digital finance alternatives. This model may reduce financial instability risks while still fostering technological progress.

And while the state can invest in controlled digital finance alternatives, there is a question about how successful they can be and also heavy restrictions can push innovation offshore, as seen with Chinese entrepreneurs driving crypto developments abroad.

“After Hong Kong opened up in crypto, a lot of the applicants and industry players are talents from the Mainland,” says Chan. “I would say at the moment, about 70% of them are PRC-related, and even PRC institutions, through their Hong Kong branches, are quite active.”

The message from Beijing appears to be that while tokenized assets and stablecoins remain restricted at home, they are being monitored in Hong Kong under close regulatory oversight. This “two-zone” approach lets Chinese firms and SOEs engage in international digital finance innovation without loosening controls on the Mainland. For China, Hong Kong functions as both a laboratory and a buffer, allowing state-backed institutions to gain experience in tokenization and digital asset settlement while the Mainland continues to prioritize and scale only the digital yuan.

China is not alone in experimenting with jurisdictional specialization in financial innovation. The European Union has long relied on centers such as Luxembourg and Ireland to balance strict continental regulation with more flexible frameworks that encourage financial experimentation. Similarly, in the United States, state-level regimes in places like Wyoming have pushed ahead with crypto-friendly rules, even while, pre-Trump at least, federal regulators maintained a cautious stance.

What makes China’s approach distinctive is the degree of central oversight: while other jurisdictions tolerate a degree of independent experimentation, Beijing ensures that offshore initiatives remain closely aligned with national objectives. Emerging markets could therefore seek a hybrid model: tighter supervision of retail speculation combined with sandbox-style regulation for institutional use cases.

While changes to China’s crypto stance are unlikely in the short term, a more nuanced approach to digital assets could emerge over the next decade if global regulatory standards mature and if tokenized finance generates compelling new use cases, provided China can retain supervisory authority.

“Crypto is increasingly becoming just like any other stock, gold or any other commodity,” says Sharma. “Most new crypto investors are interested in integrating it with mainstream markets and payment systems, making it less decentralized and more traditional. That is why stablecoins have become the most obvious way to on-ramp investors—they fit easily into existing regulatory and financial frameworks.”

The broader implication is that China is not disengaging entirely from digital finance but rather staying involved so it has the technological know-how and continues to have some means of control over digital assets. Decentralized crypto is unlikely, at least in the foreseeable future, to gain a foothold domestically, but the influence of Chinese actors will remain central to the global evolution of digital assets.

“China is zealous in nearly every new industry, but the exception is finance—where the priority for the system is stability and control,” says He. “The main attraction of crypto is decentralization, but China doesn’t want that.”