China bans real-world asset tokenization, classifying it as illegal finance

• RWA projects are treated as illegal fundraising, securities, or futures activities under existing law.
• Hong Kong-linked and offshore structures with mainland staff are explicitly targeted.
• Liability extends to the full Web3 service chain, not just token issuers.

China has delivered one of its clearest signals yet on digital finance, formally classifying real-world asset tokenization as an illegal financial activity.

A coordinated notice from seven major financial industry associations places RWA tokenization in the same prohibited category as stablecoins, cryptocurrencies, and crypto mining.

The move shuts down any remaining ambiguity around whether tokenized assets could evolve under future regulatory pilots.

Instead, regulators have drawn a hard line that reaches beyond project issuers to the entire Web3 service chain, including Hong Kong-linked operations and offshore structures with mainland staff.

The declaration was jointly issued by the China Internet Finance Association, the China Banking Association, the China Securities Association, the China Asset Management Association, the China Futures Association, the China Association of Listed Companies, and the China Payment and Clearing Association.

Unified regulatory warning

The associations stated that RWA activities have no legal basis under existing Chinese law.

Tokenization was defined as financing and trading through the issuance of tokens or token-like rights and debt instruments, a structure regulators say introduces layered risks tied to fictitious assets, operational failure, and speculative trading.

Crucially, authorities stressed that no Chinese regulator has approved any form of real-world asset tokenization, eliminating claims that projects are in trial phases or awaiting registration.

Legal observers described the announcement as a rare example of cross-industry coordination, typically reserved for moments when regulators aim to contain systemic financial risk.

Legal breaches outlined

The notice mapped RWA activity directly to violations under China’s Criminal Law and Securities Law.

Token issuance to the public while raising funds can be treated as illegal fundraising.

Facilitating token transactions or distributions without approval may constitute unauthorised public securities offerings.

Trading models that involve leverage or betting mechanisms can fall under illegal futures business operations.

Regulators also rejected the premise that token structures can guarantee ownership or liquidation of underlying assets.

Even where teams claim transparency or genuine collateral, authorities argue that risk spillovers remain uncontrollable.

Hong Kong and offshore routes

The warning explicitly targets projects that attempt to bypass mainland rules through overseas compliance narratives, asset anchoring claims, or technology service exports.

China’s securities regulator is urging domestic brokerages to halt involvement in RWA tokenization activities in Hong Kong, extending the policy reach beyond the mainland.

A key feature of the directive is the liability standard applied to service providers.

Institutions and individuals who knew or should have known that they were supporting virtual currency or RWA-related business can be held accountable.

This objective standard undermines common Web3 models that rely on offshore registration while maintaining teams and operations in China.

Web3 service chain impact

Responsibility is not limited to project founders.

Technology outsourcers, marketing agencies, influencers, payment interface providers, and operational staff all face legal exposure if they support RWA projects aimed at Chinese users.

The notice states that even employing a single operations worker in China can expose an offshore project to enforcement risk.

Regulators linked the crackdown to rising fraud under the RWA label, including schemes involving stablecoins, valueless tokens, and mining narratives used for illegal fundraising and pyramid activities.

The timing also aligns with China’s push to internationalise the digital yuan via a new Shanghai centre for cross-border payments and blockchain services, while restricting private stablecoin issuance to preserve state control over currency issuance.