Thirteen ministries and seven associations issue document to prevent virtual currency risks, where is the path for RWA?

By: Crypto Salad

On December 5, seven industry associations including the Internet Finance Association of China and the Banking Association of China jointly issued a "Risk Alert on Preventing Illegal Activities Involving Virtual Currency." This follows the meeting of thirteen government departments on November 28 to crack down on cryptocurrency trading speculation, marking another regulatory move by industry groups. The subtle chill conveyed between the lines of this document (hereinafter referred to as the "Risk Alert") sent shivers down the spines of some entrepreneurs planning to tokenize real-world assets (RWA).

Many people asked in the back-end: Sand Lawyer, is RWA completely dead in mainland China?

As Web3 legal practitioners, we believe the answer to this question is not simply "yes" or "no." At its core, RWA involves digitizing and tokenizing off-chain assets via blockchain technology, followed by secondary market liquidity and financing. However, under the current regulatory environment in mainland China, any attempt to link tokenization with public trading fundamentally challenges the red line established by the September 24, 2021 "Notice." The Risk Alert from the seven associations is like adding several glaring padlocks to an already tightly shut iron door.

I. Why It’s “Not Allowed” in Mainland: Risk Isolation Based on Bottom-Line Thinking

The Risk Alert clearly states: "Currently, no financial regulators in China have approved any real-world asset tokenization activities within the mainland." Conducting RWA in mainland China faces legal obstacles akin to "three great mountains":

1. Characterization as illegal financial activity: The document classifies domestic RWA issuance and fundraising as suspected illegal fundraising, unauthorized public securities offerings, and other illegal financial activities. In mainland China, any financing activity bypassing licensed operations is tantamount to licking blood off a blade.

2. Comprehensive blockade of financial institutions: Banks, payment institutions, and internet platforms are fully prohibited from providing settlement and promotional support for such businesses. Without deposit channels or traffic access, RWA within the mainland becomes water without a source.

3. Strong status of legal tender: Stablecoins involved in RWA do not hold legal status in mainland China; attempts to use them to anchor asset returns touch the nerve of monetary sovereignty.

Using the bottom-line thinking common in criminal defense: conducting RWA in mainland China may not be a matter of "whether it's cold," but rather "how many years you’ll serve." Yet from a governance perspective, this high-pressure stance reflects regulators applying an "emergency brake" before effective monitoring mechanisms are developed. As stated in discussions, this is largely aimed at protecting society from experiencing another systemic financial disaster similar to the P2P crisis.

II. The “Oasis” Offshore: Macro Narrative and the “Outlet”

Since the mainland is a restricted zone, attention naturally turns to offshore markets such as Hong Kong and Singapore. While the seven associations mentioned that overseas service providers conducting business targeting the mainland are also engaging in illegal activities, they did not issue a blanket ban on purely offshore operations.

A profound macro narrative lies beneath: China's internal economic cycle ultimately needs to connect with external cycles. The mainland’s strict controls and Hong Kong’s determined openness are two sides of the same coin. The mainland needs such an “outlet” to allow assets to enter international markets under compliant frameworks.

As long as a project achieves genuine “fully offshore” status—where underlying assets, funding sources, servers, and compliance entities are all located outside the mainland and involve no outflow of RMB—the mainland regulators typically lack the motivation for cross-jurisdictional enforcement. Under this model, if you thrive overseas and comply with local regulations (e.g., obtaining a Hong Kong VASP license), that remains your freedom.

III. Theoretical “Pathway” vs Practical “Chasm”: Timing Is Everything

Some mainland entrepreneurs might now wonder: Can I take revenue rights from factories or mines in China and conduct RWA in Hong Kong?

Theoretically, establishing an SPV through an ODI (Overseas Direct Investment) structure and transferring equity to an offshore entity is a viable path. But in practice, this is more difficult than the蜀Dao described in Li Bai’s poetry—it is almost a "chasm":

• First, compliance shackles on asset outbound: Cross-border ownership verification is complex and easily suspected as asset transfer.

• Second, the “circuit breaker” on capital repatriation: Foreign exchange conversion faces extremely strict cryptocurrency-related scrutiny; account freezing is often the mildest consequence, while heavier penalties include fines or even suspicion of illegal fundraising.

• Finally, legal risks for “onshore individuals”: Operating offshore cryptocurrency-related businesses while physically in mainland China still exposes individuals—whether executives or regular employees—to enforcement actions for engaging in illegal financial activities.

In fact, the more fundamental issue regarding RWA lies in timing. Currently, we assess that multiple ministries share unified views, placing the country in a "high-pressure period" focused on making examples. Even in Hong Kong, due to listed companies’ and licensed institutions’ cautious considerations of political-business relations, the prevailing attitude remains practically: "Even if not explicitly prohibited, please wait." For existing projects, the best strategy at this stage is to follow "window guidance"—either halt operations or fully transition to an overseas-only model. Defying the trend is strongly discouraged.

IV. Conclusion

RWA in mainland China hasn’t cooled down—it has never truly been "figured out." The joint statements from thirteen ministries and seven associations reaffirm once again the red lines for domestic operations.

But for ambitious mainland enterprises, the real opportunity in RWA lies hidden in the deep waters of "offshore." This is no longer a disguised act of illegal fundraising in mainland China, but rather a high-difficulty balancing act involving legal compliance, foreign exchange management, and international private placements.

Our advice is: If you want to pursue RWA, first sever all connections with mainland RMB, retail investors, and promotional channels. Before the red line, longevity matters more than speed. Legal red lines are never meant to be used for jumping rope.

Today’s silence paves the way for future regulation. If you are planning to launch RWA operations overseas and need legal compliance assessment or structural design, feel free to contact us for in-depth consultation.