(Yicai) Feb. 9 -- China has placed virtual currencies under strict, end-to end regulation, banning all organizations and individuals from issuing Chinese yuan-pegged stablecoins overseas, and imposing tight controls on domestic entities seeking to issue virtual currencies and real-world assets abroad. In doing so, it has effectively cut off so-called ‘shadow yuan’ instruments that operate outside the country’s official monetary system.

No entity or individual is allowed to issue stablecoins linked to the yuan overseas, according to new regulations issued by the People’s Bank of China and several government ministries on Feb. 6. In addition, domestic companies, as well as the offshore entities they control, may not issue virtual currencies abroad without approval.

Interest in stablecoins has been heating up since the start of 2025, even as concerns over risk controls and regulatory boundaries have grown. With Hong Kong’s Stablecoins Ordinance now in force, the licensing process for stablecoin issuers has garnered significant market interest. During the licensing frenzy, some mainland Chinese tech giants were once seen as strong contenders for the first batch of licenses.

However, in November last year, the People’s Bank of China convened a meeting on preventing risks from speculative trading in virtual currencies. For the first time, stablecoins were included in the discussion and placed in the same high-risk category as traditional cryptocurrencies, sending a strong signal of a tougher regulatory stance.

The renewed emphasis on strict crypto regulation suggests that mainland tech giants are unlikely to pursue stablecoin licenses going forward, said Xiao Sa, a senior partner at Beijing Dacheng Law Offices.

At present, several stablecoins pegged to the yuan already exist offshore. However, some lack proper issuance credentials, have opaque reserve management and can transmit risks back into the mainland through offshore markets. They may also be used as vehicles for illegal cross-border fund transfers, posing risks to China's monetary circulation and foreign exchange controls.

The new regulations will directly cut off the illegal issuance of such stablecoins by domestic institutions, and the circulation and trading of these coins will no longer be able to seep back into the mainland market, Wang Pengbo, a senior financial analyst at Broadcom Consulting, told Yicai.

On the same day, the China Securities Regulatory Commission also issued regulatory guidelines, establishing, for the first time, a clear framework for the offshore issuance of RWAs backed by domestic assets. The guidelines set forth the principle of "strictly prohibited onshore, strictly regulated offshore."

Chinese regulators have for the first time provided a clear definition of RWA tokenization, which is the use of cryptography, distributed ledger or similar technologies to convert ownership rights, income rights and other interests in assets into tokens or other token-like equity or debt instruments for issuance and trading.

The CSRC will strictly regulate the offshore issuance of RWA tokens backed by domestic assets in accordance with laws and regulations, it said. Before launching such a business, domestic entities that actually control the underlying assets must file with the regulator.

The guidelines mark a milestone for China’s nascent RWA sector, according to a research report by Guosen Securities. In the short term, some projects with weak qualifications or compliance risks are likely to be forced out, potentially dampening market activity. However, the rules leave room for compliant RWA models to develop and provide clear direction for institutions willing and capable of operating within the regulatory framework.

Editor: Kim Taylor