China's asset-tokenisation ban targets scams and capital flight, analysts say
Chinese authorities have banned onshore tokenisation of real-world assets in a sweeping crackdown that analysts say is aimed at curbing rampant financial scams and disorderly capital outflows while preserving regulated innovation in markets like Hong Kong. The joint announcement by the People's Bank of China and seven other government agencies represents Beijing's latest move to assert control over digital finance while maintaining tight capital controls.
Background and Context
Tokenisation converts ownership rights to physical assets—including real estate, art, bonds, and commodities—into digital tokens that can be traded more easily and divided into fractional shares. While proponents argue the technology unlocks liquidity for traditionally illiquid assets, Chinese regulators have grown increasingly concerned about its misuse. The crackdown follows years of restrictions on cryptocurrency trading and mining, as Beijing seeks to maintain financial stability amid economic uncertainty and continuing pressure on the yuan. Many tokenisation projects within mainland China have devolved into fraudulent schemes, according to financial researchers, prompting the regulatory intervention.
Key Figures and Entities
The announcement was issued jointly by eight government bodies led by the People's Bank of China, reflecting the coordinated approach to regulating digital finance. Liu Xiaochun, vice-president of the China Academy of Financial Research at Shanghai Jiao Tong University, explained the rationale behind the ban. "First, there are too many scammers nowadays," he told reporters. "Second, there are also numerous cases of capital outflow being conducted using either RWAs or crypto assets. That's why a ban is necessary." The academic institution has become an influential voice in China's financial policy discussions, often providing research that informs regulatory decisions.
Legal and Financial Mechanisms
The regulatory directive explicitly prohibits domestic entities and their offshore subsidiaries from issuing virtual currencies overseas without approval. Crucially, it bans any entity—Chinese or foreign—from issuing yuan-pegged stablecoins without authorization, targeting a potential loophole for capital flight. Stablecoins, which maintain value by pegging to fiat currencies, have become increasingly popular for cross-border transactions. The ban aims to prevent these instruments from undermining China's capital controls while allowing legitimate digital asset innovation to continue under strict supervision in designated financial zones like Hong Kong, where regulators have established more comprehensive frameworks for tokenised securities.
International Implications and Policy Response
The crackdown highlights the challenges global regulators face in balancing innovation against financial stability risks. While China takes a hardline approach onshore, its differentiated policy toward Hong Kong suggests a broader strategy to channel digital finance development through tightly controlled environments. International financial institutions monitoring capital flows will likely watch how effectively the ban curbs illicit outflows while legitimate investment continues through approved channels. The move also signals to global markets that China remains committed to capital controls despite growing international interest in tokenised assets, potentially influencing how other emerging markets approach similar regulatory challenges.
Sources
This report draws on the joint announcement by the People's Bank of China and other regulatory agencies, statements from the China Academy of Financial Research at Shanghai Jiao Tong University, and analysis of China's evolving cryptocurrency and digital asset policies. Information about China's previous cryptocurrency restrictions and capital control measures comes from official regulatory publications and academic research on financial technology regulation.
