China has tightened oversight of virtual currencies and real-world asset (RWA) tokenisation, with lawyers saying the new rules impose stricter compliance requirements on offshore operations and substantially narrow the scope of such activities.
The People’s Bank of China and the China Securities Regulatory Commission (CSRC), together with six other authorities, jointly issued the Notice on Further Preventing and Resolving of Risks Related to Virtual Currencies and Similar Assets (the notice) on 6 February, replacing the earlier notice on virtual currency transaction speculation risks released in September 2021.
On the same day, the CSRC also released regulatory guidelines on offshore issuance of asset-backed securities tokens based on domestic assets, providing a compliance framework for offshore RWA tokenisation.
The notice defined RWA tokenisation for the first time, distinguishing it from virtual currencies and setting out its scope: domestic issuance was prohibited, while offshore issuance required filing and regulatory approval.
Lawyers said that although a compliant offshore pathway existed, regulatory policy towards RWA tokenisation remained strict and companies should proceed with caution.
Liu Yang, a partner at DeHeng Law Offices, said the regulatory trend in digital assets had been towards tighter supervision. Compared with the 2021 document, which focused on “transaction speculation risks”, the new notice expanded to address risks associated with virtual assets more broadly, he said.
“Judging from the issuance process, the new regulatory document was released with the approval of the State Council,” Liu said.
Wang Wei, a partner at Tian Yuan Law Firm, said the most significant breakthrough regarding overseas assets of Chinese companies was the introduction of a “look-through” and “consolidated” regulatory principle for financial groups.
The rules required RWA activities conducted by offshore subsidiaries to be incorporated into the unified compliance and risk-control systems of their onshore parent companies, aligning with regulatory principles in the Chinese mainland, said Wang.
This represented a notable tightening compared with earlier practice, under which offshore subsidiaries of Chinese financial institutions largely followed the rules of their place of incorporation. If risks emerged from an offshore subsidiary’s RWA business, the onshore parent would bear management responsibility, he added.
“This completely shattered the illusion that offshore shell companies could be used for regulatory arbitrage or risk isolation,” Wang said. “This represented not merely stricter compliance oversight, but a fundamental shift in regulatory logic that would significantly raise compliance costs and operational difficulties for institutions, while materially narrowing the scope of RWA activities they could pursue overseas.”
Wang also noted that qualifying companies could theoretically issue RWA products in compliant offshore markets with prior regulatory approval, but this would be essentially an extension of existing offshore capital-markets activities such as overseas bond issuance and listings.
“This means only a small number of leading companies and assets aligned with national strategic priorities are likely to complete this path,” he said. “High compliance costs and complex approval procedures will create naturally high entry barriers.”
Liu agreed that offshore RWA business faced substantial hurdles for Chinese companies. “RWA still requires time before large-scale implementation becomes possible. Even if pilot projects emerge in the short term, the threshold for participation will remain relatively high,” he said.
For companies planning to engage in RWA activities, before more detailed rules and precedents emerged, they could refer to the compliance development path of asset securitisation, he suggested.
Regarding domestic activities, Wang said: “Any attempt to tokenise domestic assets on the blockchain and confer securities characteristics on them would be strictly prohibited, consistent with China’s longstanding crackdown on illegal fundraising and unlicensed securities issuance.”
He warned that companies should be particularly cautious not only about ordinary loyalty points or pre-sale rights, but business models that attempted to tokenise and fractionalise future income rights with stable cash flows or ownership interests in assets, and raise funds from the public.
“For example, tokenising and selling the future rental income of a commercial property, the future toll revenue of an infrastructure project, or receivables from equipment financing leases through blockchain technology would constitute typical RWA business,” Wang said. “Such activities fall squarely within the categories strictly prohibited by regulators in China.”
