China’s Financial Authorities Drop Regulatory Hammer: RWA Labeled Illegal Financial Activity
China's financial watchdogs just drew a hard line in the sand. A joint notice from the nation's top regulators slaps the 'Real-World Asset' (RWA) tokenization trend with a stark new label: illegal.
The Regulatory Stance
Forget gentle guidance or exploratory frameworks. This is a definitive crackdown. The notice positions RWA activities—which involve issuing digital tokens backed by physical assets like real estate or commodities—squarely outside the bounds of permissible finance. It's a move that cuts off a burgeoning sector at the knees, signaling zero tolerance for financial innovation that bypasses state control.
Market Implications
The ripple effects are immediate. Projects flirting with RWA concepts in or connected to Chinese markets face an existential threat. The ruling doesn't just add red tape; it erects a wall. It forces a stark choice: pivot or perish. For global crypto markets, it's a reminder that the world's second-largest economy remains a fortress of centralized financial command—no matter how slick the tokenomics model. Sometimes, the most traditional financial move is to simply ban the competition.
This isn't a speed bump for RWA; it's a roadblock poured in regulatory concrete. While the rest of the finance world debates tokenization's future, China's authorities have issued their verdict. The message is clear: innovate within the cage, or don't innovate at all.
RWA projects operating lack legal standing within China
According to the notice, no real-world asset tokenization activities have been approved by China’s financial regulatory authorities. This claim emphasizes that all RWA-branded tokenized assets, services, intermediaries, and trading platforms currently in the market lack any legal basis for operation.
The notice confirms that RWA is legally treated as a fundraising and trading mechanism. This classification subjects RWA to China’s Securities Law and regulations banning illegal financial business. Any token issuance, trading arrangement, or yield distribution now falls within prohibited activity.
“Criminals take advantage of the situation to HYPE trading activities, using the banners of stablecoins, worthless tokens (such as Pi Coin), real-world asset (RWA) tokens, and ‘mining’ to conduct illegal fundraising and pyramid-scheme fraud,” the associations stated.
The statement also warned that domestic staff who support overseas crypto or real-world-asset token service providers knowingly will be held legally accountable. If the company is registered offshore, and the team operates in mainland China, it will be considered to be providing services domestically.
This applies to project teams and all ecosystem service providers, including project consultants, tech outsourcers, marketing agents, KOL promoters, payment integrators, and more. To that end, the entire Web3 service chain surrounding RWA is effectively terminated inside China.
Mainland China is no longer a jurisdiction awaiting regulatory clarity
The authorities said that RWA is too risky financially, no matter how it is set up. There is no mention of technical pilots or conditional compliance frameworks in the disclosure. Regulators saw the problem as a financial concern, not a technological one.
The warning rejects arguments based on asset backing, smart contracts, or offshore structuring. Any model involving financing and trading is treated as illegal. The document also rejects claims of temporary restriction.
The associations have cleared the air that Mainland China is no longer a “jurisdiction awaiting regulatory clarity.” It is one that has completely rejected RWA. The industry participants are left to either completely relocate the business to a jurisdiction with an independent, compliant regulatory system or abandon RWA entirely.
However, several mainland Chinese firms, including financial institutions and tech companies, have initiated RWA projects in Hong Kong last year. However, they have maintained a low profile since the CSRC advised Chinese brokerages in September to pause their RWA projects in the city.
A Hong Kong subsidiary of China Merchants Bank tokenised a $3.5 billion money market fund on BNB Chain. Also, in the US, popular stocks like Apple, Nvidia, and Tesla have been tokenized.
Each token reflects the price of its real-world counterpart, backed by actual shares held in custody by Backed Finance, the Swiss-based platform behind xStocks, which are referred to as tokenized securities.
Total xStocks trading volume has reached more than $457 million since the products launched on major exchanges in June, as per Dune analytics. Altogether, there are currently a total of $19.4 billion of RWAs issued on-chain, down 20% in six months, with 602,000 asset holders.
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