China's Regulatory Shift: Redefining Stablecoins and Drawing Clear Boundaries

Overview of China's Regulatory Shift on Stablecoins

The conference held on the 28th marks a pivotal shift in China's stance on stablecoins. With officials from the Ministry of Public Security, the Cyberspace Administration, the Central Financial Affairs Office, the Supreme People's Court and the Supreme People's Procuratorate, the State Administration of Foreign Exchange, the China Securities Regulatory Commission, and the National Financial Regulatory Administration in attendance, this high-level gathering indicates that the Chinese government views stablecoins as a pressing issue requiring unified action.

The Formal Definition of Stablecoins

The highlight of the conference was the explicit statement that "stablecoins are a form of virtual currency." This marks the first formal definition of stablecoins in an official Chinese document, placing them squarely within the regulatory framework for illegal financial activities related to digital currencies. This definition eliminates any ambiguity, speculation, or hope that previously existed regarding the status of stablecoins in China.

Impact of the Regulatory Definition

In the past, China's stance on digital currencies was seen as strict, but there was always an "expressive gap" regarding stablecoins. Many entrepreneurs believed that this gap might allow room for discussion, leading to experiments in areas such as cross-border payments, supply chain finance settlement, foreign trade payments, on-chain Renminbi, and blockchain pilot projects. However, the new definition eliminates these possibilities, placing stablecoins firmly within the purview of existing digital currency regulations.

A Risk-Focused Regulatory Perspective

A common misconception in the industry is that technological advancements, security, and transparency in underlying assets will influence regulatory decisions. However, China's position is clear: the risks posed by stablecoins outweigh their potential technological benefits. The conference press release consistently emphasized three key issues: money laundering, fraud, and cross-border capital flows. These issues are intricately linked to all digital currency-related cases in the past three years.

The Connection to Illegal Activities

Stablecoins have become an essential component in the settlement of various illegal activities, including "running points" schemes, online gambling, fraud, illicit money laundering, and illegal foreign exchange. Their ability to facilitate fast, cross-border, and difficult-to-trace transactions makes them particularly attractive to these operations. As a result, regulators view stablecoins as a starting point for risk. Unless these dangerous links are addressed, any discussion of the commercial value of stablecoins becomes irrelevant.

Risk Takes Priority Over Innovation

The regulatory priority is always risk mitigation, with innovation considered secondary. Because stablecoins cannot currently meet Know Your Customer (KYC), Anti-Money Laundering (AML), and capital account regulations, they will not have a policy window. Many players in the industry may have a misunderstanding, comparing China's regulatory logic with that of other countries like Hong Kong, Singapore, and the United States. However, this conference made it clear that China will not follow a similar path. China's regulatory goal is not to increase market efficiency but to ensure risk control.

No Room for Innovation or Experimentation

Following this specific definition, there is no longer a basis for "narrow" innovations, small-scale experiments, regulatory sandboxes, or on-chain Renminbi projects. Many startup teams have been asking the same questions over the years: Can we focus solely on blockchain technology? Can we avoid user interaction and focus only on system development? Can foreign entities issue stablecoins while a local team provides technical support? Can we explore cross-border financial pilot projects in free trade zones? These questions no longer require explanation. Since stablecoins are now considered virtual currencies, they fall directly under the general framework that digital currency-related activities are illegal.

A Clear Red Line for Enterprises

If your business is linked to mainland China in any way—whether through users, funds, servers, promotions, settlements, technical services, matching, or agency issuance—the risk level is the same. There is no distinction between technology companies or companies that only serve other businesses. The legal status of stablecoins does not allow for such differentiation.

Focus on Overseas Projects

For Chinese entrepreneurs looking to engage in stablecoin projects, there is only one path: the project must be an entirely overseas project. This means a foreign legal entity, a foreign bank account, a foreign audit, foreign users, and a foreign regulatory license. Most importantly, they must not provide services to any Chinese users or connect with any Chinese funds in their value chain. If any part of the project is located within China, it will automatically be classified as an illegal financial activity. This is a very clear red line.

Divergent Regulatory Goals

Hong Kong, Singapore, the Middle East, and Europe are continuously introducing stablecoin regulatory frameworks. However, their regulatory goals are quite different. They aim to enhance the international competitiveness of their local finance through stablecoins. In contrast, mainland China focuses on ensuring capital account management and financial security. Since the goals are different, the paths are also different.

An Opportunity to Focus on Overseas Markets

For mainland entrepreneurs, this classification is not intended to be a comprehensive ban but rather a clear signal: stop wasting time on projects that are unlikely to materialize. Instead, focus your energy on overseas markets. This signals the end of stablecoin illusions in the mainland and means that the industry no longer needs to try to explore "gray possibilities."

Clarity for the Industry

For entrepreneurs, this is bad news because one path has been closed off. However, it is also good news because judgments have become clear, and there is no longer a need to spend time in the wrong directions. With regulators having clarified their position, it is time for the industry to make its own judgments.