China Declares RWA Tokenization Illegal, Dismantles Domestic Web3 Service Ecosystem

Source: Cryptonews Original Title: Bitcoin RWA tokenization faces sweeping China ban Original Link:

Overview

Seven major Chinese financial industry associations jointly declared real-world asset (RWA) tokenization an illegal financial activity. The China Internet Finance Association, China Banking Association, China Securities Association, China Asset Management Association, China Futures Association, China Association of Listed Companies, and China Payment and Clearing Association issued a notice warning domestic and international practitioners that RWA activities lack legal basis for operation under Chinese law.

The statement listed RWA alongside stablecoins, cryptocurrencies, and crypto mining as primary manifestations of illegal virtual currency activities, categorizing tokenization projects as high-risk, fraudulent methods rather than emerging financial technologies awaiting regulatory clarification.

Regulatory Stance and Legal Framework

Attorney Liu Honglin described the coordinated announcement as “a blatant cross-industry, cross-regulatory ‘unified messaging’ operation,” noting that such association collaborations typically occur only at critical junctures in preventing systemic financial risks.

The joint notice explicitly defined real-world asset tokenization as “financing and trading activities through the issuance of tokens or other rights and debt instruments with token characteristics,” stating such operations carry “multiple risks, including the risk of fictitious assets, the risk of business failure, and the risk of speculation.”

Regulators emphasized that Chinese financial regulatory authorities have not approved any real-world asset tokenization activities, eliminating any possibility that projects could claim to be in regulatory exploration phases or awaiting registration approval.

Three Critical Legal Violations

Regulators outlined three critical violations under existing Chinese law associated with RWA operations:

1. Illegal Fundraising: Projects issuing tokens to the general public while raising funds face illegal fundraising charges.
2. Unauthorized Securities Offerings: Facilitating transactions or distributing tokens without permission constitutes unauthorized public securities offerings.
3. Illegal Futures Operations: Token trading involving leverage or betting mechanisms may constitute illegal futures business operations.

These characterizations are grounded directly in provisions of China’s Criminal Law and Securities Law.

Scope of Enforcement and Liability

The notice targeted not only project operators but the entire Web3 service ecosystem supporting RWA activities. It stated that “domestic staff of relevant overseas virtual currency and real-world asset token service providers, as well as domestic institutions and individuals who knowingly or should have known that they are engaged in virtual currency-related businesses and still provide services to them, will be held accountable according to law.”

The “knowing or should have known” standard establishes a legal presumption of liability based on reasonable objective judgment rather than requiring proof of subjective intent, directly negating the common Web3 operational model of offshore company registration with mainland Chinese staff.

Project planners, technology outsourcing providers, marketing agents, influencer promoters, and payment interface providers all face potential legal consequences if they provide services to RWA projects targeting Chinese users. The directive stated that even hiring a single operations person in China could expose ostensibly offshore projects to legal risks.

Strategic Context

The enforcement approach effectively terminates the entire domestic Web3 service chain built around RWA within China, as supporting services lose viable business models alongside the prohibition on primary operations.

The crackdown follows frequent fraudulent activities operating under RWA branding, with the document noting that “criminals are taking advantage of this to promote related trading and speculation activities, using stablecoins, worthless coins, Real-World Asset (RWA) tokens, and ‘mining’ as a guise to carry out illegal fundraising, pyramid schemes, and other illegal activities.”

The timing coincides with China’s push to internationalize its digital yuan through a new Shanghai operations center focused on cross-border payments and blockchain services, while simultaneously blocking major tech firms from issuing stablecoins in certain regions to preserve the state’s monopoly on currency issuance.