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China's Ban on Crypto and the Major Shift of Yuan-Backed Stablecoins
Intermediate
2025-08-05 | 15m
China's relationship with cryptocurrency represents one of modern finance's most profound paradoxes: the world's strictest ban on decentralized digital assets coexists with ambitious state-led blockchain innovation. The May 2025 prohibition criminalizing personal crypto ownership marked the culmination of a decade-long regulatory escalation, eliminating nearly all domestic crypto activity. Yet this suppression strategy has simultaneously catalyzed a sophisticated alternative—yuan-backed stablecoins developed through Hong Kong's regulatory autonomy. This dual-track approach reflects Beijing's determination to harness blockchain's efficiency while preserving Communist Party control over finance. By examining the ban's evolution, geopolitical drivers, and the emerging stablecoin ecosystem, we uncover China's blueprint for a state-directed digital asset revolution that could redefine global finance.
China Crypto Policy and Banning History
2013: China Bans Banks from Crypto Transactions
China's antagonistic position towards cryptocurrency can be traced back to December 5, 2013, when the People's Bank of China (PBoC), along with the Ministry of Industry and Information Technology and other financial regulatory bodies, collectively issued a notice that prohibited banks from engaging in transactions related to bitcoin.
According to the announcement made at that time, bitcoin was classified as a "special virtual commodity," which meant it did not possess the legal foundation to operate as a currency. Specifically, the prohibition was enacted because the digital asset lacked backing from any nation or central authority. Furthermore, the PBoC highlighted that bitcoin could serve as a potential means for money laundering. While the regulator did not prevent individuals from trading bitcoin, it cautioned participants to remain aware of the associated risks.
This notice was released during a period when bitcoin trading had started to gain significant momentum, with the price of bitcoin surpassing the $1,000 threshold for the first time just ten days prior to the issuance of the ban. In the aftermath of the announcement, the value of bitcoin experienced a decline of over 30% on the now-defunct Mt. Gox Exchange, which was the largest bitcoin exchange globally at that time.
In response to its prohibition on bitcoin transactions, the PBoC reportedly convened with leading third-party payment services in China on December 16 and instructed them to cease operations with bitcoin exchanges. Two days later, BTC China (BTCC), the largest bitcoin exchange in the country at that time, declared that it had halted the acceptance of yuan deposits, further contributing to the decline in bitcoin's price.
2017: China Bans Crypto Initial Coin Offerings
In an effort to support a declining yuan and prevent illegal capital flight from China, the central bank of the country initiated an investigation into the operations of cryptocurrency exchanges in January 2017. This inquiry concentrated on the exchanges' methods of foreign exchange management and their compliance with anti-money laundering regulations.
It appears that the results of this investigation influenced the decision to prohibit initial coin offerings (ICOs) on September 4, 2017. At that time, ICOs represented the most dynamic aspect of the cryptocurrency sector, enabling entrepreneurs and developers to secure funding for their initiatives by creating and selling tokens.
The People's Bank of China (PBoC) classified ICOs as an unlawful fundraising method. Consequently, it prohibited ICO platforms from issuing ICO tokens and mandated that funds raised through ICOs be returned to investors. Among other concerns, the regulator indicated that ICOs jeopardize the stability of the national economy and present risks of "business failure." The directive also specified that financial institutions and non-bank payment companies were barred from offering services related to token-based fundraising activities.
As the cryptocurrency community in China was still coming to terms with this new situation, regulators released another order compelling crypto exchanges to voluntarily cease operations by September 15. A leaked document sent to these exchanges indicated that they were required to terminate their activities and establish procedures for users to withdraw their funds. The consequences of this situation led some exchanges based in China to relocate their operations to other countries, while others were forced to shut down entirely. Among the digital asset exchanges impacted were BTCC and ViaBTC.
To circumvent this prohibition, Chinese cryptocurrency traders began utilizing offshore exchanges or peer-to-peer platforms for all their trading activities.
2019: Attention Turns to Bitcoin Mining
In April 2019, China’s National Development and Reform Commission (NDRC) labeled bitcoin mining an “undesirable” industry in its preliminary list of sectors that should be encouraged, restricted or phased out by local governments. Bitcoin mining, which is a computer-intensive process of validating bitcoin transactions to earn newly minted bitcoin in reward, fell under the catalog of industries the agency considered to be highly polluting.
As expected, this development sparked some level of panic, considering that a significant percentage of bitcoin mining rigs are manufactured in China. Also, more than half of the world’s bitcoin mining power was domiciled in China because operators had access to cheap electricity. Although the NDRC eventually omitted bitcoin mining from its final draft after much deliberation, the entire episode was the first hint of things to come.
2020: Enforcement Ramps Up
For the better part of 2020, the Chinese government tightened its grip on crypto exchange activities within its borders amid an ongoing campaign to crack down on money laundering and fraud. In August, the PBoC revealed its intention to block over 100 foreign websites offering crypto exchange services.
2021: China Bans Crypto Trading and Mining
The Chinese crypto industry’s problems in 2021 began in May when the State Council doubled down on past crypto policies by calling for the restriction of crypto mining and trading. Before this, the provincial authorities of Inner Mongolia, Xinjiang and Sichuan provinces, which were all major bitcoin mining hubs, had begun to introduce policies that stifled the operations of bitcoin miners.
Following the statement from the State Council, provincial governments began to take proactive measures to eradicate crypto mining. Regulators cited bitcoin’s energy-intensive nature and how it poses a threat to the country’s environmental goals as its core reasons for justifying the new crackdown.
Much like the impact of the crypto exchange crackdown in 2017, bitcoin miners were either forced to shut down permanently or move to other crypto-friendly countries. Because around 50% of the world’s bitcoin mining power was generated in China before the crackdown, the global bitcoin economy expectedly felt the brunt of China’s bitcoin mining ban.
As if the bitcoin mining crackdown was not enough, the country’s regulators opted to ban crypto trading altogether in September. Unlike the previous crypto transaction crackdowns, the country’s central bank, in conjunction with nine other state bodies, including the police and the supreme court, removed all shroud of doubt regarding the country’s stance on cryptocurrency and left no room for misinterpretation.
Why Does China Ban Crypto?
Four interconnected imperatives explain China's uncompromising stance:
Financial Control and Capital Containment
Cryptocurrencies directly challenge China's $50,000 annual forex cap. PBOC estimates $75 billion exited illegally via crypto in 2024, undermining monetary sovereignty. The ban fortifies China's "Great Firewall" against capital flight while preserving foreign exchange reserves.
Digital Yuan (e-CNY) Primacy
The e-CNY, processing 7 trillion yuan ($970B) across 26 cities by mid-2024, anchors China's fintech ambitions. Decentralized cryptocurrencies threatened its adoption by offering uncontrolled alternatives. The ban eliminates competition while accelerating e-CNY's global rollout through Shanghai's international operations hub.
Systemic Risk Mitigation
Crypto's volatility clashes with China's stability-first governance. PBOC cited 2024's $2.3 trillion global crypto crash as evidence of inherent instability requiring preemptive suppression.
Geopolitical Positioning
Banning decentralized assets asserts China's model of state-controlled digital infrastructure against U.S. crypto-ETF approvals and Europe's MiCA framework. This divergence positions China as architect of an alternative financial order where technology serves state sovereignty.
Chinese Yuan Stablecoin Portal: Hong Kong's New Crypto Frontier
While the prevailing narrative on the mainland is that "China bans crypto," Hong Kong is positioning itself as a regional frontrunner in regulated digital asset innovation—most notably with the potential issuance of a Chinese yuan stablecoin.
In May 2025, Hong Kong enacted the Stablecoin Ordinance Bill, which established a comprehensive licensing and regulatory framework for issuers of fiat-backed stablecoins. The Hong Kong Monetary Authority (HKMA) now oversees a sandbox environment where leading entities such as Standard Chartered Hong Kong, Animoca Brands, and JD Chain Technology are testing compliant stablecoin products. These regulations require full 1:1 reserve backing in high-quality assets, stringent anti-money laundering protocols, and robust investor protections. The penalties for non-compliance are severe, sending a clear message that only highly qualified issuers, operating under transparent governance—are permitted to participate in the stablecoin market.
This regulated framework creates opportunities for a Chinese yuan stablecoin (particularly CNH, or offshore yuan) to enter global circulation. Policymakers and major financial institutions view this product as a digital conduit for cross-border trade, facilitating settlements outside traditional networks such as SWIFT and CIPS. By enhancing the digital reach and global influence of the renminbi, the Chinese yuan stablecoin could bolster China’s broader initiatives to internationalize its currency and advance its fintech sector.
Industry leaders, including Hong Kong lawmaker Duncan Chiu, have advocated for flexible and innovative licensing, especially for stablecoins pegged to the Hong Kong dollar and the Chinese yuan. A compliant Chinese yuan stablecoin would solidify Hong Kong’s status as a digital finance bridge between the mainland and the global market, attracting talent and investment as the landscape continues to evolve.
Chinese Businesses Enter the Stablecoin Sector
The emergence of clear regulation for stablecoins in Hong Kong has attracted major Chinese enterprises eager to capitalize on future demand. JD.com, through its fintech arm JD Chain Technology, is currently recruiting talent to specialize in stablecoin development and digital yuan integration. Ant Group and other top fintechs are also eyeing participation in this new sector.
This flurry of activity coincides with global market movements, where discussions about stablecoin regulation and infrastructure have taken center stage not only in Asia but also in the U.S., enhancing the importance of a Chinese yuan stablecoin as part of international digital finance competition.
The Future of Currency Competition
China’s endgame involves leveraging stablecoins to advance yuan internationalization:
Phase 1: Stablecoin Integration (2025–2026)
Yuan-backed stablecoins will facilitate ASEAN and Belt & Road trade settlements. PetroChina trials stablecoins for oil exports, bypassing dollar systems.
Phase 2: RWA Tokenization (2027–2030)
Tokenized commodities (rare earths, lithium) and bonds create digital asset corridors. Hong Kong targets $16T RWA market share, integrating with Singapore and Middle Eastern markets.
Phase 3: Contingent Crypto Openness
Hong Kong may approve Bitcoin ETFs if U.S. models prove stable, acting as China’s regulatory buffer.
This roadmap aims to position the yuan as a digital reserve currency, exploiting U.S. regulatory fragmentation and EU caution under MiCA.
Conclusion
China’s crypto ban is not technological rejection but strategic realignment. By criminalizing decentralized assets while cultivating stablecoins and RWAs in Hong Kong, Beijing seeks to balance blockchain adoption with Communist Party control. The approach carries risks: underground markets persist, talent may emigrate, and dollar stablecoins dominate globally. Yet it offers a template for hybrid digital finance—where public blockchains enable efficiency while regulators retain oversight. For global markets, this signals bifurcation: decentralized crypto in the West versus sovereign-aligned assets in the East. As stablecoins evolve into payment infrastructure, China’s experiment may redefine how nations harness disruptive technologies without surrendering sovereignty.
Reference:
AInvest. (2025, August 2).
China formally bans crypto trading and mining to eliminate remaining activity.
https://www.ainvest.com/news/china-formally-bans-crypto-trading-mining-eliminate-remaining-activity-2508/
Colitco. (2025, August 4).
China expands crypto ban to personal ownership.
https://colitco.com/china-crypto-ban-personal-ownership-expanded/
Bitget Academy. (n.d.).
China bans crypto: Hong Kong and Chinese yuan stablecoin. Retrieved August 5, 2025, from
https://www.bitget.com/academy/china-bans-crypto-hong-kong-chinese-yuan-stablecoin
Investopedia. (n.d.).
Price of cryptocurrencies totally dependent on China. Retrieved August 5, 2025, from
https://www.investopedia.com/news/price-cryptocurrencies-totally-dependent-china/
CoinDesk. (n.d.).
China crypto bans: A complete history. Retrieved August 5, 2025, from
https://www.coindesk.com/learn/china-crypto-bans-a-complete-history
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
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