China clarifies oversight of virtual currency activities

In a move to fend off financial risks, China clarified its regulatory stance on onshore entities' overseas activities related to virtual currencies, including stablecoins, bringing these activities under strict oversight while reaffirming its stringent ban on such onshore activities.

The People's Bank of China, together with the China Securities Regulatory Commission and six other central government departments, released a notice on Friday on further preventing and handling risks related to virtual currencies, updating a 2021 version.

The notice makes clear that, without approval granted in accordance with laws and regulations by relevant authorities, onshore entities and offshore entities they control are prohibited from issuing virtual currencies overseas.

The document also specifies that, without regulatory approval, no onshore or offshore entity or individual may issue renminbi-pegged stablecoins overseas, a type of virtual currencies designed to maintain a stable value by being pegged to fiat currencies or other real-world assets.

"Stablecoins linked to fiat currencies perform some functions of fiat currencies during circulation and usage in a disguised way," the notice said.

The notice also reiterated domestic bans on virtual currency activities, classifying them as "illegal financial activities".

"Virtual currencies such as Bitcoin, Ether and Tether, which are issued by non-monetary authorities and rely on cryptographic and distributed ledger or similar technologies to exist in digital form, do not have legal tender status. They should not and must not be used as currencies in market circulation," the notice said.

The notice also specifies that onshore entities are barred from conducting real-world asset tokenization activities overseas without required regulatory procedures.

Where onshore entities directly or indirectly engage in overseas RWA tokenization — either in the form of external debt or through asset-securitization-like or equity-type structures based on onshore asset ownership or income rights — such activities will be subject to strict regulation under the principle of "same business, same risks and same rules".

In addition, offshore entities and individuals are prohibited from illegally providing RWA tokenization or virtual currency-related services to onshore entities.

Violations involving virtual currencies or RWA tokenization, as well as the provision of related services, will be punished in accordance with relevant regulations, with criminal liability pursued where applicable, the notice said.