China's regulation makes a decisive statement: multiple departments crack down on stablecoins, and encryption payments face renewed pressure.

The People's Bank of China, in conjunction with the Ministry of Public Security, the Cyberspace Administration, and other departments, held a meeting to reiterate that virtual money does not possess legal compensation, and all related activities are deemed illegal financial activities. They will focus on cracking down on fraud and illegal cross-border fund transfers using stablecoins. This policy briefing marks the launch of a new round of more coordinated and high-pressure regulations in response to the trend of “revival” of crypto assets activities after the comprehensive ban in China in 2021. At the same time, Hong Kong's open attitude towards cryptocurrency under “one country, two systems” contrasts sharply with the regulatory path in the United States that encourages innovation, further exacerbating the fragmentation of the global crypto regulatory landscape.

Multiple Departments Join Forces: Why is Regulatory Control Tightening Again?

According to the latest meeting notice released by the People's Bank of China (PBOC), a joint meeting led by the central bank, involving key departments such as the Ministry of Public Security, the Central Cyberspace Administration, and the Supreme People's Court, was recently held, with the core issue directly addressing the resurgent speculation activities in Virtual Money. The meeting clearly pointed out that, despite the effectiveness of the comprehensive ban in 2021, related trading activities have recently revived, accompanied by issues such as fraud, illegal fundraising, and cross-border capital transfers to evade regulation, posing new challenges for financial risk prevention and control.

The core tone of this meeting is extremely strict and leaves no room for negotiation: Virtual Money does not have the status of legal currency and cannot circulate as currency in the market. Any payment settlement or investment transaction related to it is classified as illegal financial activity. This statement completely kills the market's gray imagination about the possible “payment” or “specific scenario applications.” Regulatory authorities particularly emphasized the risks brought by the anonymity of stablecoins, believing that the lack of customer identification and anti-money laundering measures facilitates illegal activities.

The upgrade of this multi-departmental coordinated action indicates that China's regulatory strategy is shifting from issuing bans by a single department to establishing a long-term, cross-departmental monitoring and law enforcement linkage mechanism. The aim is to more effectively track the flow of funds and cut off any potential connections between crypto transactions and the domestic financial system. This “combination blow” approach is intended to address the pain point of the difficulty in eradicating “underground” or “disguised” transactions that emerged after previous bans.

Key Points of Core Decisions in the Meeting

• Regulatory Qualification: All businesses related to Virtual Money are illegal financial activities.
• Key Focus: Speculative trading, fraud, illegal fundraising, illegal cross-border fund transfers
• Special Concern: The anonymity of stablecoins leads to risks of money laundering and fraud.
• Implementation Mechanism: Strengthen cross-departmental (central bank, public security, internet information, judicial) collaborative monitoring and law enforcement.
• Historical Background: This is a new round of high-pressure regulation after the comprehensive ban in September 2021.

The focus is directly on stablecoins: Anonymity is the biggest “knot” in regulation.

In this round of tightening policies, stablecoins have been singled out and placed at the core of risk warnings, which is no coincidence. Regulatory authorities have explicitly pointed out that stablecoins lack appropriate customer identity verification and anti-money laundering protections, making them easy tools for money laundering, illegal cross-border financing, and fraud. This concern directly addresses the current global stablecoins (such as USDT and USDC) that compromise compliance for efficiency in their technical design, as their pseudo-anonymity or partial anonymity indeed poses significant challenges for regulatory tracking.

This stance forms a dramatic contrast with the regulatory trends of another major global economy, the United States. In the U.S., especially under the Trump administration's policy direction of “making America a crypto powerhouse,” Congress is actively promoting legislation aimed at providing a clear and friendly regulatory framework for USD stablecoins. The tightening and loosening of stablecoin regulations between China and the U.S. not only reflects the different trade-offs both sides make regarding financial sovereignty, capital controls, and the risks of financial innovation, but may also shape two completely different development paths for digital assets in the future: one path is a highly centralized, fully traceable compliant stablecoin path; the other is a privately issued stablecoin path that is strongly suppressed and pushed underground.

At the same time that the regulatory authorities in mainland China harshly criticize stablecoins, there are reports that the Chinese government is studying the issuance of a stablecoin pegged to the Renminbi, aiming to compete with US dollar stablecoins in the international payment arena. This reveals the complexity of China's regulatory logic: it targets “uncontrolled” private crypto assets, but may adopt an open or even encouraging attitude towards “digital fiat currency” or its derivatives, which are backed by national sovereign credit and centrally managed. This strategy of “combining blockage and release” aims to firmly maintain control over digital currency.

The “Gray Area” of Market Realities and Policy Tension

Despite the repeated regulations, the connection between the Chinese market and Crypto Assets has not been completely severed, presenting a complex picture of “policies from above and countermeasures from below.” In April of this year, reports indicated that local governments in China sold approximately 15,000 Bitcoins that had been previously confiscated on foreign exchanges to alleviate fiscal pressure. Although this action itself is a handling of existing assets, it objectively links the official forces of China to the global Crypto market and exposes the realistic considerations of policy implementation at the practical level.

On the other hand, some large state-owned enterprises have not stopped exploring blockchain technology and encryption payment tools. For example, PetroChina was reported in August to be researching the feasibility of using stablecoin for specific cross-border transactions, using relevant practices in Hong Kong as an important reference. The movements of such enterprises indicate that in the face of the actual commercial demand to improve cross-border trade efficiency and reduce settlement costs, technology-neutral tools still have their appeal, which creates a tension between policy prohibitions and enterprises' covert explorations.

In addition, the China Securities Regulatory Commission (CSRC) previously issued informal guidelines to Hong Kong-based Chinese brokerages, requiring them to suspend tokenized product projects. This demonstrates Beijing's high vigilance regarding innovative activities that might affect financial stability in the mainland, even when conducted in autonomous Hong Kong. This practice of extending regulatory influence overseas aims to build a comprehensive risk prevention network to prevent the emergence of “regulatory arbitrage” opportunities.

The Special Role of Hong Kong and the Fragmentation of the Global Regulatory Landscape

As regulatory tightening continues in mainland China, the Hong Kong Special Administrative Region is moving along a completely different path, thanks to its independent judicial and financial management system under “one country, two systems.” The Hong Kong government not only actively supports the development of the Web3 and Crypto Assets industry but also prioritizes the establishment of a stablecoin regulatory framework as a core topic for the development of financial technology. Financial Secretary Paul Chan personally endorsed the international crypto event, clearly conveying Hong Kong's ambition to become a global digital asset hub.

The “tight and loose” regulatory situation between Hong Kong and the mainland provides market participants with a unique “China window” and “testing ground.” Many international Crypto Assets companies view Hong Kong as a springboard to enter the Asia-Pacific market, while mainland capital and technology may also participate in the global crypto ecosystem indirectly through Hong Kong's compliant channels. This pattern makes Hong Kong a “thermometer” and “pressure valve” for observing China's long-term attitude towards Crypto Assets — the scale and speed of its development may reflect a dynamic balance at a higher level between “risk prevention” and “seizing cutting-edge opportunities.”

From a global perspective, the drastically different approaches of China and the United States to crypto regulation are exacerbating the fragmentation of the global regulatory landscape. The U.S. is attempting to incorporate crypto innovation into the existing financial regulatory framework through legislation, while China is driving private crypto activities out of its national system through strong bans and simultaneously developing a controllable central bank digital currency. Other major economies, such as the EU, are seeking a third path between these two approaches. This state of fragmentation will increase the complexity of cross-border compliance in the short term, but in the long term, it may also give rise to more diversified crypto products and business models that adapt to different regulatory environments.

Industry Impact and Response Strategies Outlook

For the Crypto Assets industry, China's new round of policy tightening is undoubtedly a bearish signal in the short term. It means that one of the largest potential user markets in the world will continue to remain closed, and related projects and business models relying on Chinese traffic will find it difficult to sustain. For stablecoin issuers, especially for coins like USDT that have been widely used in the mainland, their circulation channels will further narrow, and compliance pressure will increase sharply.

However, based on historical experience, China's strict regulations have objectively played a role in “forcing upgrades” by eliminating market speculation bubbles and prompting the industry to seek friendlier environments abroad. The current ban will encourage surviving teams with Chinese backgrounds to focus more on technology research and development and compliant product design, and to completely shift towards serving the global market. Meanwhile, Hong Kong's open window is becoming increasingly valuable, and it is expected that more resources and talent will gather in Hong Kong, promoting its true development as a Web3 hub connecting the East and West.

For global investors and project parties, it is crucial to understand the underlying logic of Chinese policies—namely, prioritizing financial stability, capital controls, and monetary sovereignty. This means that any attempts to “go around” or “play close to the line” to enter the Chinese market face extremely high risks. A more rational strategy is: on one hand, to respect China's regulatory boundaries and not to proactively touch the red lines; on the other hand, to closely monitor developments in Hong Kong, using it as the main gateway to observe and interact with the Asian market. In a future where regulatory fragmentation becomes the norm, flexibility and localized compliance capabilities will become the core competitive advantages for project survival and development.

Conclusion: Seeking a Dynamic Balance Between Closure and Innovation

China has once again clarified its high-pressure stance on Crypto Assets and stablecoins, continuing its consistent logic of maintaining financial security and monetary sovereignty. This rectification action, led by multiple departments, aims to extinguish any potential “spark” that could ignite widespread issues, demonstrating the determination and strength of regulation. However, the resilience of market forces, the inertia of technological development, and Hong Kong's unique role together form a gray area and external variables that the policy cannot fully cover.

In the long run, the wave of digital currency cannot be completely blocked by simple bans. While China is vigorously “blocking” private crypto assets, it is also accelerating the “unblocking” of central bank digital currency (digital yuan) and its potential derivative compliant digital asset applications. This game of regulation and innovation is far from over; it will enter a search for the next dynamic balance under the combined effects of global pattern evolution, technological breakthroughs, and changes in financial demand. For the industry, a deep understanding of the regulatory philosophies of different jurisdictions, along with continuously creating real value within clear boundaries, is the lighthouse that will guide them through the fog of economic cycles.