The thirteen ministries and seven associations issued a document to prevent the risks of Virtual Money. What is the way forward for RWA?

Introduction

On December 5th, the China Internet Finance Association, the Banking Association, and six other major industry associations jointly released a “Risk Reminder on Preventing Illegal Activities Involving Virtual Currencies and Other Risks.” This follows the meeting of thirteen ministries on November 28th, which reiterated the crackdown on speculation in virtual currency trading, and represents a subsequent regulatory action by industry associations. The document (hereinafter referred to as the “Risk Reminder”) conveys a sense of chill, causing some entrepreneurs who are planning to tokenize real-world assets (RWA) to shudder.

Many people are asking in the background: Lawyer Liu, is RWA completely dead in the mainland?

As Web3 legal professionals, we believe that the answer to this question is not simply “yes” or “no”. The core of RWA is to digitize and tokenize offline assets through blockchain technology, and then facilitate secondary market liquidity and financing. However, under the current regulatory context in mainland China, any attempt to engage in tokenization linked to public trading essentially challenges the red line set by the “9.24 notice” in 2021. The risk alert from the seven associations is more like adding several glaring locks to the iron door that has long been firmly shut.

1. Why the Mainland “Cannot Do It”: Risk Isolation Under Bottom-Line Thinking

The “Risk Warning” clearly states: “Currently, no (real-world asset tokenization activities) have been approved by our country's financial management departments.” Engaging in RWA in the mainland faces legal barriers akin to “three great mountains”:

(1) The qualification of illegal financial activities

The “Risk Warning” classifies the issuance and financing of domestic RWAs as suspected illegal fundraising, unauthorized public issuance of securities, and other illegal financial activities. In mainland China, any financing behavior that circumvents licensing rights is like licking blood on the tip of a knife.

(2) Comprehensive blockade of financial institutions

The “Risk Warning” requires banks, payment institutions, and internet platforms to be completely prohibited from providing settlement and promotional support for such businesses. Without deposit channels and traffic entrances, domestic RWAs have become a source-less water.

(3) The Dominant Position of Fiat Currency

Stablecoins involved in RWA (such as USDT, USDC, etc.) do not have legal status in the mainland, and attempting to use them to anchor asset returns has touched the nerve of monetary sovereignty.

From the perspective of the common bottom-line thinking in criminal defense: engaging in RWA in mainland China may not be a question of whether it is 'cool or not', but rather a question of 'how many years of sentencing'. However, from a governance perspective, this high-pressure situation is actually an 'emergency brake' by the regulatory authorities when they have not yet figured out effective monitoring methods. From the regulator's point of view, this is largely to protect society and prevent the entire society from experiencing another systemic financial disaster similar to P2P.

2. The “Oasis” Outside the Borders: The “Outflow” Under the Macro Narrative

Since the mainland is a restricted area, everyone will naturally turn their attention to offshore markets such as Hong Kong and Singapore. Although the seven associations mentioned that “it is also illegal for overseas service providers to conduct business in the mainland,” they did not issue a clear blanket ban on purely overseas business.

There is a deeper macro narrative hidden here: the internal circulation of the Chinese economy ultimately needs to connect with the external circulation. The mainland's “strict lockdown” and Hong Kong's “decisive opening up” are actually two sides of the same coin. The mainland needs such an “outlet” to allow assets to flow into the international market within a compliant context.

As long as the project can truly achieve “full offshore”—with everything from the underlying assets to the funding side, from servers to compliance entities all located overseas, and without involving the outflow of RMB from within the mainland, the local regulatory authorities typically lack the motivation for cross-domain enforcement. In this model, if you are thriving overseas and comply with local regulations (such as obtaining a Hong Kong VASP license), that is your freedom.

3. Theoretical “Thoroughfare” vs Practical “Heavenly Moat”: Timing is Everything

At this time, some mainland bosses might have an idea: can I bring the rights to domestic factories and mineral profits to Hong Kong for RWA?

In theory, establishing an SPV through an ODI (Overseas Direct Investment) structure to transfer equity to an overseas entity is a feasible path. However, in practice, this is comparable to the Shu Road in Li Bai's poetry, and it is almost like a “natural barrier.”

First, the compliance shackles for asset outflow. Cross-border confirmation of rights is complex and can easily be suspected by mainland regulators as asset transfer.

Secondly, the “circuit breaker” for capital repatriation. The foreign exchange settlement process faces extremely strict cryptocurrency audits, and having an account frozen is often just the mildest outcome; more serious cases may face fines or even suspicion of illegal fundraising.

Finally, the legal risks for “domestic individuals”. If a person conducts overseas cryptocurrency-related business in the mainland, law enforcement agencies can still take action.

In fact, the more fundamental issue lies in the “timing”. Currently, we believe that with the unified opinions from multiple ministries at the regulatory level, the domestic market is in a “high-pressure period” of typical case enforcement. Even in Hong Kong, due to the cautious considerations of listed companies and licensed institutions regarding political and business relationships, the prevailing stance is mostly “even if there is no prohibition in law, please wait a moment first.” The best strategy for existing projects at this stage is to respond to the “window guidance”, either by halting or completely changing to an all-overseas plan, and it is crucial to avoid engaging in activities against the wind.

IV. Conclusion

RWA has not cooled down in the mainland, but has never truly been “understood”. The statements from the thirteen ministries and seven associations once again reaffirmed the red lines for domestic operations.

But for ambitious mainland enterprises, the real opportunity of RWA lies in the deep waters of the “offshore” sector. This is no longer a façade for illegal fundraising on the mainland, but rather a high-level acrobatics involving legal compliance, foreign exchange management, and international private equity.

Our advice is: if you want to engage in RWA, you should first cut off all connections with domestic Renminbi, ordinary retail investors, and promotional channels. In the face of red lines, surviving longer is more important than running faster. The legal red line has never been meant for jumping rope.

The current silence is for the future norms. If you are planning to conduct RWA business overseas and need legal compliance verification or architectural design, please feel free to contact us for in-depth consultation.