China’s New Regulations Target Crypto and RWA Tokenization

Eight Chinese ministries and commissions, including the People’s Bank of China and the China Securities Regulatory Commission (CSRC), jointly released “Document No. 42” to further prevent and manage risks associated with virtual assets. According to an analysis of the document, this new regulation supersedes and formally repeals the “924 Announcement” from 2021, which was previously the cornerstone of China’s crypto policy. The new rules expand the regulatory perimeter to cover the full lifecycle of digital assets, from creation to trading.

The document elevates the legal authority behind the regulations by adding higher-level legal bases, such as the “Futures and Derivatives Law of the People’s Republic of China.” It also establishes a novel dual-track supervision system, clarifying the division of labor among regulatory bodies to eliminate ambiguity and improve enforcement.

Document No. 42 introduces several critical updates that significantly alter the regulatory landscape for digital assets in China. The most prominent changes include the explicit inclusion of RWA and stablecoins, which were not directly addressed in previous rules.

• Expanded Scope: The regulations now formally define and prohibit most RWA tokenization activities within China. The rules state that converting asset ownership or income rights into tokens is considered an illegal financial activity unless explicitly approved by competent authorities.
• Stablecoin Regulation: The document identifies stablecoins pegged to fiat currency as partially performing the functions of legal tender. It prohibits any entity, domestic or foreign, from issuing stablecoins pegged to the Chinese Yuan (RMB) without regulatory approval.
• Dual-Track Supervision: A new enforcement mechanism has been created. The PBOC will lead the work mechanism for virtual currency regulation, while the CSRC will lead a parallel mechanism for supervising RWA tokenization.
• Cross-Border Prohibitions: The regulations explicitly forbid overseas entities from providing RWA-related services to domestic residents. Furthermore, domestic entities are prohibited from issuing virtual currencies overseas without approval, and their overseas RWA activities based on domestic assets will be strictly supervised.
• Mining Crackdown: The new rules intensify the crackdown on cryptocurrency mining, expressly prohibiting manufacturers from selling mining machines within China, aiming to cut the industry off at its source.

The issuance of Document No. 42 is a direct response to the evolution of the digital asset market and perceived gaps in the previous regulatory framework. The “924 Announcement” was primarily focused on virtual currency trading and speculation. The new regulations aim to create a more precise and comprehensive legal structure to address emerging financial products like RWA and stablecoins, which regulators believe pose new risks.

By clarifying the roles of different agencies through the dual-track system and strengthening local departmental accountability, the government seeks to eliminate the “buck-passing” that may have hindered effective enforcement under the previous multi-department coordination mechanism. The stated goal is to prevent illegal financial activities, including unauthorized securities offerings, illegal fundraising, and violations of currency laws.

While the new regulations are detailed, several key aspects remain unspecified. The document does not provide a clear timeline for full implementation across all local departments. It is also unclear what penalties, if any, will be applied retroactively to entities that previously engaged in activities now explicitly defined as illegal. Finally, while the rules mention the possibility of lawfully approved RWA activities, the specific criteria, application process, and type of financial infrastructure required for such approval have not been detailed.

The immediate next step involves the dissemination and implementation of these rules by local branches of the regulatory bodies involved. Financial institutions, tech service providers, and intermediary firms will need to conduct thorough compliance reviews to ensure their operations align with the expanded prohibitions. Domestic financial institutions with overseas branches conducting tokenization business must now integrate Chinese compliance and risk control standards into their global operations. The market will be watching closely for the first enforcement actions under this new, stricter framework.

Individuals and organizations involved in the digital asset space with exposure to China should take immediate steps to understand and comply with the new rules. Key actions include:

• Conducting a comprehensive legal review of all business activities to assess compliance with Document No. 42.
• Immediately ceasing any RWA or stablecoin services provided to Chinese residents from overseas platforms.
• Consulting with legal counsel specializing in Chinese financial and securities law to navigate the updated regulatory landscape.
• For entities considering legitimate, regulated activities, monitoring official announcements from the PBOC and CSRC for details on approved business models and licensing requirements.