Beyond RWA: With the implementation of Document No. 42, China's regulatory framework for virtual assets is taking initial shape.

Author: Will Awang, Web3 Xiaolu

On February 6, 2026, the People's Bank of China and eight other ministries issued the "Notice on Further Preventing and Handling Risks Related to Virtual Currency" (Yinfa [2026] No. 42, hereinafter referred to as "Document No. 42"). Document No. 42 generally continued the "one-size-fits-all" strict regulatory attitude of the Chinese mainland regulators towards virtual currency.

While Circular 42 doesn't delve deeply into stablecoins, it does leave room for them to operate under the principle of "dynamic assessment."

More importantly, Circular 42 brought Real-World Asset Tokenization (RWA) under regulatory purview for the first time. Simultaneously, the China Securities Regulatory Commission (CSRC) also issued a "Regulatory Guidelines on the Issuance of Asset-Backed Securities Tokens Overseas by Domestic Assets" (hereinafter referred to as the "Guidelines"). These Guidelines, together with the regulatory requirements for Real-World Asset Tokenization in Circular 42, provide a framework for the development of RWA business, which has long been operating in a gray area.

Document No. 42 brings all three types of virtual assets/digital assets—virtual currencies, stablecoins, and real-world asset tokens—under regulation, filling previous regulatory gaps and making it the most precise and complete legal regulation document in the field of virtual asset-related businesses in mainland China.

Thus, China's regulatory framework for virtual assets has taken initial shape.

I. Historical Evolution of Virtual Asset Regulation in Mainland China

The "94 Announcement" (Announcement on Preventing Risks of Token Issuance Financing) issued on September 4, 2017, determined that token issuance financing (ICO) is essentially an unapproved and illegal public financing, suspected of various illegal and criminal activities, and completely banned ICOs and required trading platforms to clean up and rectify related businesses within a specified period.

The "924 Notice" (Notice on Further Preventing and Handling Risks of Virtual Currency Trading and Speculation) issued on September 24, 2021, clearly states that virtual currencies are not legal tender, and related transactions, exchanges, intermediaries, token issuance financing, and derivatives trading are all illegal financial activities. It prohibits overseas exchanges from providing services to the domestic market and establishes a multi-dimensional risk prevention and handling system.

Related reading: A brief overview of China's regulatory attitude towards virtual currencies (January 25, 2023)

Following this, no comprehensive legal documents were issued in this field for a long period. Until November 28, 2025, the coordination meeting of thirteen ministries reiterated that virtual currency-related businesses belong to illegal financial activities, and for the first time explicitly included stablecoins in the category of virtual currencies and listed them as a key area of ​​supervision. The meeting also added the Central Financial Affairs Office and other departments to strengthen central-local coordination and criminal justice intervention, focusing on monitoring the flow of funds and information to combat regulatory evasion.

On December 5, 2025, the seven associations issued a risk warning clarifying that virtual currencies are not legal tender, that my country has not approved any RWA tokenization activities, and that member institutions are strictly prohibited from participating in or providing related services. They also warned of the illegal risks associated with stablecoins, worthless cryptocurrencies, and RWA tokens, and advised the public to stay away from speculation.

This represents a non-comprehensive, patchwork-style, and one-size-fits-all regulatory approach to virtual assets in mainland China, primarily aimed at preventing illegal financial activities, combating crime, and maintaining social order.

Until February 6, 2026, the document No. 42 issued by eight ministries and commissions made a precise distinction between various categories of virtual assets (virtual currencies, stablecoins, and real-world asset tokens) and their corresponding regulatory forms.

II. Interpretation of the Core Clauses of Document No. 42

Notice on Further Preventing and Handling Risks Related to Virtual Currencies (Yinfa [2026] No. 42) issued by the People's Bank of China, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the State Financial Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange.

Link:

https://www.pbc.gov.cn/tiaofasi/144941/3581332/2026020619591971323/index.html

Clearly define the essential attributes of virtual currencies, tokenization of real-world assets, and related business activities.

2.1 The "One-Size-Fits-All" Regulatory Principle for Virtual Currencies

(i) Virtual currencies do not have the same legal status as fiat currencies. Virtual currencies such as Bitcoin, Ethereum, and Tether have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technologies, and existing in digital form. They do not have legal tender status and should not and cannot be used as currency in the market .

Virtual currency-related business activities constitute illegal financial activities. Any virtual currency-to-fiat currency exchange, virtual currency exchange, acting as a central counterparty in virtual currency trading, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, or trading of virtual currency-related financial products within China , which constitute illegal token issuance, unauthorized public offering of securities, illegal operation of securities and futures businesses, illegal fundraising, or other illegal financial activities, are strictly prohibited and will be resolutely shut down according to law. Foreign entities and individuals are prohibited from illegally providing virtual currency-related services to domestic entities in any form.

Web3 Law Interpretation:

First, the definition of virtual currency remains consistent with previous regulations—it does not have the same legal status as fiat currency. Furthermore, the geographical scope of regulation is clearly defined for the first time—conducting virtual currency-related business activities within China constitutes illegal financial activity. Finally, a new provision states that overseas entities and individuals are prohibited from illegally providing virtual currency-related services to domestic entities in any form.

This regulatory principle in mainland China, which applies a blanket ban on virtual currencies—one type of virtual asset/digital asset— not only defines them as illegal financial activities, but also further clarifies the geographical scope of regulation, strictly prohibiting any virtual currency-related activities within mainland China.

• They are prohibited from engaging in related activities within the territory.

• Foreign entities are prohibited from providing services to domestic entities.

Although virtual currencies are recognized as "virtual commodities" in mainland China (with their property attributes partially recognized in criminal and civil judicial practice), their existence as "financial assets" or "settlement tools" has been completely eradicated.

2.2 Regulatory Principles of "Dynamic Evaluation" of Stablecoins

Stablecoins pegged to fiat currencies effectively perform some of the functions of fiat currencies in circulation. Without the approval of relevant authorities in accordance with laws and regulations, no entity or individual, whether domestic or foreign, may issue stablecoins pegged to the Renminbi overseas.

Web3 Law Interpretation:

This is the regulatory principle for "dynamic evaluation" of stablecoins , the second type of virtual/digital asset, in mainland China.

Although the document issued by 13 ministries on November 28, 2025, clearly states that stablecoins are a form of virtual currency, the document also mentions the need to "dynamically assess the development of overseas stablecoins."

Related reading: Stablecoins in 2025: You're in the Dream of the Red Chamber, I'm in Journey to the West

The "dynamic assessment" by thirteen ministries also left a loophole for stablecoins in Document No. 42: Stablecoins pegged to the RMB shall not be issued without the consent of relevant departments in accordance with laws and regulations.

The remaining issues require further observation:

• Under what circumstances would regulators approve the issuance of a stablecoin pegged to the RMB?
• Does the circulation of a digital yuan (CBDC) with legal tender attributes comply with regulatory requirements?
• How will Hong Kong's stablecoin licensing system develop?

Regarding the allocation of regulatory responsibilities, Document No. 42 innovatively implements a multi-departmental collaboration mechanism, clearly dividing regulatory responsibilities into two lines:

• The central bank regulates virtual currencies (including stablecoins).
• The China Securities Regulatory Commission (CSRC), the National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology (MIIT), and the State Administration of Foreign Exchange (SAFE) regulate RWAs based on their type.

2.3 RWA's Regulatory Principles for "Licensed Business Operations"

(ii) Real-world asset tokenization refers to the activity of using cryptographic technology and distributed ledger or similar technology to convert the ownership and income rights of assets into tokens or other rights and bond certificates with token characteristics, and then issuing and trading them.

Conducting real-world asset tokenization activities within China , as well as providing related intermediary and information technology services, which are suspected of involving illegal token issuance, unauthorized public offerings of securities, illegal operation of securities and futures businesses, illegal fundraising, or other illegal financial activities, should be prohibited, except for related business activities conducted based on specific financial infrastructure with the approval of the competent authorities in accordance with laws and regulations. Foreign entities and individuals are prohibited from illegally providing real-world asset tokenization-related services to domestic entities in any form.

(xiii) Without the consent of the relevant authorities in accordance with laws and regulations, no domestic entity or its controlled overseas entity may issue virtual currency overseas.

(xiv) Any real-world asset tokenization business conducted directly or indirectly by domestic entities in the form of foreign debt , or real-world asset tokenization business conducted overseas based on domestic asset ownership, beneficial rights, etc. (hereinafter collectively referred to as domestic equity ), shall be strictly regulated by the National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments in accordance with their respective responsibilities and in accordance with laws and regulations, based on the principle of "same business, same risk, same rules." Other forms of real-world asset tokenization business conducted overseas by domestic entities based on domestic equity shall be regulated by the China Securities Regulatory Commission in conjunction with relevant departments in accordance with their respective responsibilities. No unit or individual may conduct the above-mentioned business without the consent or filing of the relevant departments.

Web3 Law Interpretation:

These are the regulatory principles for RWA (Real-World Asset) "licensed business operations," the third type of virtual/digital asset, as stipulated by Chinese mainland regulators.

A. It is explicitly prohibited to conduct real-world asset tokenization activities within the territory.

Firstly, Article 2 of Circular 42 defines the nature of RWA for the first time, and its overall scope is quite broad. It also clarifies the geographical restrictions on regulation, which is the same as for virtual currency-related businesses. It explicitly states that conducting real-world asset tokenization activities within the territory, as well as providing custody, clearing and settlement, intermediary, and information technology services related to real-world asset tokenization, are all illegal financial activities and should be strictly prohibited.

However, this excludes business activities conducted using specific financial infrastructure with the approval of the competent business authority in accordance with laws and regulations. However, there is currently no clear definition of "specific financial infrastructure." For example, some RWAs aimed at fundraising might be implemented through domestic exchanges, but that's all; they lack any on-chain programmability or composability.

B. Guidelines for Licensing and Conducting Business for Domestic Assets Issuing RWAs Overseas

For real-world asset tokenization activities conducted overseas using domestic assets, Circular 42 and the Guidelines adopt the regulatory principle of " strict supervision and compliant business operations " with a licensing requirement. Specifically:

• Depending on the nature of real-world asset tokenization businesses, and following the regulatory principle of "same business, same risks, same rules," they are regulated by the corresponding regulatory authorities in mainland China. The process involves: domestic assets – overseas issuance – domestic licensing and filing.

• RWA business types are subject to the same regulatory models as traditional cross-border financial businesses. RWA in the form of foreign debt is regulated by the National Development and Reform Commission (NDRC) (corporate foreign debt is reviewed and registered by the NDRC); RWA in the form of equity and RWA in the form of asset securitization are regulated by the China Securities Regulatory Commission (CSRC) (stock issuance is reviewed by the stock exchange and registered by the CSRC, while asset securitization is reviewed by the stock exchange).

• Similar to traditional cross-border financial transactions, offshore RWA also involves the repatriation of funds raised overseas to China, which is regulated by the State Administration of Foreign Exchange.

• In addition, Article (xiii) of Circular 42 provides an opening for other types of RWAs to meet the needs of different innovative businesses. Since the previous RWAs primarily used financial assets as underlying assets, this article may provide a pathway for physical assets or other equity assets.

Based on Document No. 42, the CSRC guidelines further clarify the relevant compliance requirements for "domestic assets issuing asset-backed securities tokens overseas," and stipulate that the CSRC is responsible for supervising and filing such "domestic assets issuing asset-backed securities tokens overseas."

Definition: "Issuance of asset-backed securities tokens overseas using domestic assets" refers to the activity of issuing tokenized equity certificates overseas using encryption technology and distributed ledger or similar technologies, with the cash flow generated by domestic assets or related asset rights as repayment support.

In addition to the guidance from the China Securities Regulatory Commission (CSRC), clear guidance documents from other regulatory authorities are needed, or the regulations should be incorporated into the existing framework of traditional cross-border financial regulation.

For RWA, it is particularly important to clarify that:

• New blockchain and tokenization technologies cannot prevent any risks; the underlying assets have not changed, and the risks have not changed either.

• This RWA represents a new way of asset circulation based on blockchain, rather than a new way of asset creation.

• On the asset side, the core issue is which assets are more suitable for tokenization.

III. China has initially established a regulatory framework for virtual assets.

China's regulatory stance on virtual currencies has remained unchanged, but this Document No. 42 is not merely a reiteration of the strict attitude towards virtual currencies.

Document No. 42 differentiates between three important forms of virtual/digital assets: from a "one-size-fits-all" approach to virtual currencies, to "dynamic evaluation" of stablecoins, and then to a positive shift towards "permissioned business" for tokenized real-world assets (RWA). This represents a progressive regulatory approach and signifies that China will promote the development of virtual/digital assets from virtual to real-world assets.

The image above shows the categories of virtual/digital assets that I have been sharing, and the differentiated regulation in Document No. 42 this time can be seen as a confirmation of this.

Thus, China has initially established a regulatory framework for virtual/digital assets, although more detailed rules are yet to be refined. However, the core red lines remain:

• It is strictly prohibited to conduct business within the territory, or to conduct business targeting the territory.
• It is strictly prohibited to use virtual currencies (stablecoins) to perform the functions of fiat currency.

Looking back at Dr. Xiao Feng's proposal from Hashkey to "start from the origin and look at the first principles of blockchain," its underlying logic remains clear:

• Blockchain is becoming the new global unified ledger and the infrastructure for new finance;
• Tokenized money built on this ledger will level the efficiency and cost of global value transfer.
• This has created a global, 24/7, multi-product market for payments, lending, and capital finance.

The virtual/digital asset framework that China has now begun to establish will fully leverage the advantages of blockchain and tokenization to inject more innovative vitality into the real economy and traditional finance.